Hedge funds hit hard in May

The last time hedge funds struggled this badly in a single month was November 2008, after the Lehman bankruptcy.

Chip East/Reuters/File
Mark Kurland, who already pleaded guilty to conspiracy and securities fraud surrounding his involvement in the Galleon hedge fund insider trading case, departs from federal court after being sentenced to 27 months in prison, in New York on May 21. May proved to be a rough month for hedge funds in general, with almost all funds losing money.

Stockholm, Sweden – Hedge funds went the way of the Dow in May and got hit hard, losing a mean of roughly 2.7 percent as indicated by the HFRX Global Hedge Fund Index.

To dial back to the last time hedge funds struggled this badly in a single month, you’d have to look at November 2008. That was in the aftermath of the Lehman bankruptcy when they lost on average only a touch more, about 3 percent.

According to Bloomberg:

“Almost every strategy lost money in May, according to Hedge Fund Research Inc. in Chicago, as the Dow index of 30 big stocks sank 7.6 percent including dividends amid speculation that Greece’s debt problems would spread to nations such as Spain and Portugal. Some of the best-known funds saw their gains for this year erased.

“’Attempting to manage risk in an environment where everything that could go wrong does go wrong seems like a fruitless endeavor,’ said Brad Balter, who runs Balter Capital Management LLC, a Boston firm that invests in hedge funds for clients. ‘The only defense that seems to work in months like these is being in cash.’

“Paulson’s Advantage fund dropped 6.9 percent through May 21, dragging it to a year-to-date loss of 3.3 percent, according to investors with knowledge of the results, who asked not to be named because the information is private. Halvorsen’s Viking Global fund fell 3.4 percent in the same span and 2.9 percent for the year. Bacon’s Moore Global declined 7.7 percent as of May 20 and 4.8 percent in 2010, investors said.”

The coverage suggests much of the poor performance can be blamed on the market and the Dow’s “worst May since 1940.” And, in addition to the above, some of the biggest losers include SAC Capital Advisors, which manages roughly $12 billion and lost about 2.9 percent; Citadel Investment Group, a $12 billion hedge fund that gave up 2 percent; and Brevan Howard Asset Management, Europe’s largest hedge fund. Perhaps this incidental tally provides a bit more evidence that the US and Europe are still holding hands on their ride down this slippery slope.

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