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November 18, 2005
Hedge funds look for bounce back
Hedge funds were hurt last month by the poor performance of global equity and bond markets, but they are already anticipating a bounce back. The hardest-hit strategies, including long/short equity and special situations, are among those expected to rally.
Widening spreads will benefit relative value and event-driven investments, said Max Gottschalk, senior managing director at Gottex Fund Management. "There should be some good opportunities in the next couple of months," he ventured, adding that November has also started strongly for equities.
Long/short equity funds are thought to have suffered most in October, and the FTSE Hedge Global Index suggests an average drop of 3.5% for long/short managers. Many had increased their gross and net exposure to get more directionality, which paid off in previous months, said Scott MacDonald, director at Mellon Global Alternative Investments. "I think they got more long-biased than they ideally wanted to be." By reining in their long exposure once again, managers will likely gain back some of their October losses in the next couple of months, he said.
According to the FTSE index, event-driven strategies lost an average 2.2% in October. But such funds should bounce back in the near-term, said MacDonald. "Special situations took a hard hit, and I think some of that was mark-to-market," he explained. "A lot of positions were getting hurt more from association: the whole strategy suffers because spreads widen a bit. It has a knock-on effect." Investors rushing to exit positions will create new opportunities in the coming months, added MacDonald.
Bill Maldonado, ceo at HSBC Alternative Investments Limited in London, agreed, but warned that nothing is certain. "These things tend to go in cycles...but there's no guarantee that [a large-scale bounce back] will happen and, indeed, many that were affected in October have removed risk," he said.
-Alternative Investment News-
Posted by su at November 18, 2005 10:13 AM