Composite hedge fund performance was down in August, losing between 0.86% and 0.49% compared to gains ranging from 1.32% to 1.4% in July, according to research from Citi analyst Sandy Kaul. Considering the stock market’s surge in July and downward correction in August, the reversal isn’t much of a surprise.
Global financial markets declined in August
“Global financial markets declined in August as Emerging Market equities and currencies extended prior month declines, and investors positioned for volatility associated with reduction of stimulus by the US Federal Reserve and uncertainty over possible military conflict in the Middle East,” writes Kaul.
Of course, the top performing strategy in August was dedicated short, gaining 2.34%, followed by distressed debt which gained 0.52%, Event Driven strategies which gained 0.16% and convertible arbitrage with 0.12%. The worst performing strategies were managed futures losing 0.91%, equity market neutral strategies losing 0.67%, and emerging market strategies which lost 0.54%.
Gates Capital Management's ECF Value Funds have a fantastic track record. The funds (full-name Excess Cash Flow Value Funds), which invest in an event-driven equity and credit strategy, have produced a 12.6% annualised return over the past 26 years. The funds added 7.7% overall in the second half of 2022, outperforming the 3.4% return for Read More
Despite the losses, industry-wide assets under management went up due to strong inflows: $20.4 billion positive net flows versus $18.4 billion in losses. Large hedge funds with more than $500 million AUM underperformed, losing 0.6% compared to small and medium funds which each lost 0.4%, but large funds still make up 73% of the industry by AUM.
Hedge funds had a rough month in August
Even though hedge funds had a rough month in August, as did most investors, it wasn’t enough to erase the gains they’d made in 2013 up to that point, and no doubt they have continued to gain ground since the end of August.
Many short investors have taken a beating this year
Dedicated short also won’t continue to be the top performing strategy in the months after August – so many short investors have taken a beating this year that some long/short funds have switched to dedicated long strategies, and it’s more interesting when short sellers refuse to budge that when they switch strategies and try to cash in on a growing market. Famed short-investor Bill Fleckenstein announced that he will start raising money for a $200 million short-only fund early next year to take advantage of “really stupid valuations”, but it’s in preparation for opportunities that he thinks will inevitably present themselves. Even he isn’t willing to short the market just yet.