While hedge funds enjoyed a great five month period early in the year and some posted eye-popping returns in the equity long/short and event-driven strategy, a decent chunk of those gains were wiped out over the last couple of months. The leading cause of these troubles was of course the aptly named taper-tantrum, while more damage was inflicted by the slowdown in China.
High yields and plunging returns
As bond yields spike all across the developed markets and stock markets plummet in most countries, credit focused hedge funds are up for a tough time ahead. This comes after a very rosy year for funds who invest in debt of corporates and sovereigns, when several of them managed to beat the market in 2012. Benchmark credit indices have done poorly, iShares Barclays Aggregate Bond Fund (NYSEARCA:AGG) was down 3.6% till the end of July, Credit Suisse Leveraged Bond Index was up 2.8% and Barclays US Corp. HY Index has gained only 1.4% through the first half of the year. This year has so far proved to be far less profitable for these funds, however there are a few who have gained a decent sum through the year.
In his book, The Dhandho Investor: The Low–Risk Value Method to High Returns, Mohnish Pabrai coined an investment approach known as "Heads I win; Tails I don't lose much." Q3 2021 hedge fund letters, conferences and more The principle behind this approach was relatively simple. Pabrai explained that he was only looking for securities with Read More
Tough year after a profitable 2012
One of the best performing hedge funds of the year has been David Tepper’s Palomino Fund which applies a long/short credit strategy, the fund has gained 23% in the seven months ending on July 31, after a brilliant +5% gain in last month. Paolmino was down in June when credit markets shook, so if more difficult months are ahead, the returns may not remain as healthy anymore.
Josh Brinbaum’s Tilden Park Offshore Fund, which principally invests in MBS instruments, has netted a 14% gain in the same period, after a +0.78% return in July. However the moderate return does not compare at all with the whopping +41% that the fund returned in last year.
Mitchell Julis and Joshu Friedman $2.3 billion Canyon Balanced Fund has gained 12.3% thorugh July after a +20.5% return in last year. Canyon Value Realization Fund which manages $5.7 billion is up 9.6% in this year.
Edward Mule’s Silver Point Capital Offshore is up 11.6% in the $5.1 billion fund. John Paulson is up 12.5% through July in Paulson Credit Opportunities Fund.
Smaller funds like, Brazil based BTG Pactual’s Distressed Mortagage Fund is up 11% for the year, in stark contrast to the +46% gain it posted in 2012. Chenavari Toro Capital IA has netted a 15.4% gain through the first half of the year, and at this rate seems on track to come head to head with the 32% return the fund posted in 2012.