Last month, a sailing yacht sponsored by the Connecticut Hedge Fund Association won the fourth annual Hedge Fund Regatta in New York Harbor.
Ever since, the industry has had its finger stuck into the wind for a hint of a favorable breeze.
In the past few weeks, several hedge fund indices depict an industry stuck in irons, renewing concerns about the volatility of hedge funds and their impact on financial markets. Sen. Christopher Dodd, who oversees the U.S. Senate”™s banking committee, has broached the idea of increasing hedge fund oversight, as has Connecticut Attorney General Richard Blumenthal.
Hedge funds have driven much of the employment growth in Fairfield County and Connecticut as a whole during the past several years, with prominent funds including Greenwich-based Tudor Investment Corp., Bridgewater Associates Inc. in Westport; and Stamford-based K2 Advisors, whose partner William Douglass skippered the Connecticut Hedge Fund Association”™s victorious entry.
One year after the Greenwich fund Amaranth Advisors went aground, Fairfield County funds continue to find themselves in the news. Tudor”™s star Boston trader James Pallotta told investors late last month that a fund he manages is down 8 percent this year, according to a report by Bloomberg News. Pallotta warned a consumer recession is likely if not already under way, and that hedge funds could be hit particularly hard.
As quickly as hedge funds lose money, they can recoup it ”“ consider AQR Capital Management. After its flagship fund lost 13 percent of its value in the first 10 days of August, according to industry newsletter Money Management Letter, the Greenwich fund needed just two weeks to recover its position.
Experts say the sector is better positioned to weather adverse winds, due to increased stability from investments by institutional investors, rather than wealthy individuals more prone to yanking investments according to the latest barometer reading.
Graham Capital Management LP was one exception to the general industry doldrums in August. With a 30 percent return in the second quarter, the Rowayton fund was the only U.S. fund to crack the top five worldwide, according to the latest data provided to Pension & Investments magazine by Morningstar Inc., a Chicago company that tracks hedge fund returns.
On average, hedge funds that manage more than $100 million produced a 5.04 percent return, Morningstar found, well off the performance of the S&P 500 index published by Standard & Poor”™s.
The Morgan Stanley Capital International (MSCI) index of 400 hedge funds dropped 3.36 percent in the first three weeks of August, with less than 15 percent of the 400 funds MSCI tracks achieving positive returns during that stretch.
Despite the subpar performance, well-heeled institutions continue to invest in hedge funds, with Lipper calculating the industry received $41 billion in the second quarter. It was the largest influx in a second quarter since 1994, and increased the sector”™s total assets under management to nearly $1.7 trillion, Lipper indicated.
Even as word leaked of AQR”™s dog days of August, the Wall Street Journal reported that the company quietly raised $1 billion for a new fund.
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