A surge in volatility was supposed to help hedge funds to rebound after years of poor returns. Instead, it made things worse.
The stock market's fear indicator, the Cboe Volatility Index, surged last month as the S & P 500 suffered its worst monthly decline for nearly a decade.
Hedge funds, which were accustomed to rising asset values after years of easy money policies by central banks, continued their downtrend and ended the year down 4%, their biggest decline since then. 2011.
This double blow increases the prospects for new capital outflows and undermines the $ 3 trillion industry that is expected to yield money through long / short bets designed to take advantage of significant market movements during the course of the year. periods of volatility.
Already shaken by a similar rise in volatility last February, investors withdrew about $ 15 billion in hedge funds last year until November, according to eVestment data.
Few strategies were spared during the last crisis. Lansdowne Partners LP's $ 7 billion core fund, David Einhorn's flagship monetary pool, and the extensive losses of Horseman European Select. Key Square's $ 5 billion macro fund, created by Scott Bessent, former chief investment officer at Soros Fund Management, wiped out all his winnings.
"I do not remember many decembers where the dish was considered a success, but it was an extraordinary month," wrote Greg Coffey, founder of Kirkoswald Capital Partners LLP, in a letter to investors. Its fund lost 0.1% in December. end of the year up 5.4%.
Hedge funds are not totally immune to the chaos of the market, but many of them have lost more than the broader market because the growing risks to economic growth, war prospects President Donald Trump's commercial and combative attitude was a challenge.
The Lansdowne Developed Markets Fund posted a 7.4% loss last year, while Horseman European Select fell 10% in December to wipe out a third of its value in 2018. Greenlight Capital closed 2018 with the largest annual loss never recorded in the main fund. The Key Square hedge fund lost 3.1% to end the year down 2%. Spokespersons for Lansdowne Partners and Key Square declined to comment, while a spokeswoman for Horseman confirmed the return.
Investor-activist Chris Hohn of TCI Fund Management Ltd., who has never lost money in one year except 2008, recorded a 7% loss in December that wiped out the near total. all of its gains for 2018, according to a letter to investors as seen by Bloomberg.
There were some notable exceptions, such as Crispin Odey, whose bearish wagers fueled a 53% hike in its hedge fund, and Brevan Howard, which returned 12.3% to its leading hedge fund for the best year since the end of the global financial crisis.
But for the most part, especially those with high net market exposure, it was a year to forget. More than half of the hedge funds tracked by Preqin went through a tough month of December with losses, the worst year since 2008, when three quarters of them suffered a decline.
"The month of December proved, if needed, that most liquid hedge funds tended to behave like the market," said Nicolas Roth, head of alternative assets at Reyl & Cie, Geneva. . "Hedge funds giving access to complex and less liquid markets the way forward to protect portfolios from market fluctuations".
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