Hedge Funds performance disappoints in the second quarter

Filed in archive Hedgetalk on August 21, 2006

As hedge funds gain popularity and the amounts of money under management steadily increase, some observers point out, that their long record of outperforming the leading stock indexes could get in danger.

Recent performance reports unveil some disappointing facts: Hedge funds have not done what it says on the tin.

Hedge funds failed to provide the positive returns they often claim amidst the recent downturn of the markets.

A one quarter performance figure can't of course be taken as an indication of the mid to long term ability of the hedge fund industry to beat the markets in general. But some warning signs could appear if we consider the very favorable market environment of the last years, which not only brought out many new hedge funds but also has provided strong incentives to massively bet on stable trends in several global markets and sectors (small caps, emerging markets, currencies and commodities, to name a few). The recent uncertainties obviously has hit some of those positions.

"Funds have not done what it says on the tin," says Justin Modray at Bestinvest, a retail broker. "Most funds have been launched in the last three years and up to the last quarter they have generally risen. But this has shown that they don't always produce absolute returns." (Financial Times)