Financial Times – The recent market turmoil has wrong-footed a wide swathe of hedge funds, many of which have seen their gains this year wiped out in the past few weeks, according to figures obtained by the Financial Times.
Nearly every category suffered, but Japan-focused funds have been particularly hard hit due to the fall in the Nikkei.
Seven of the 10 worst affected funds in one big private bank’s roster invested exclusively in that country. Emerging markets, commodities and European funds were also punished.
The fact so many funds were hit in the same way highlights what some see as a worrying trend towards a herd mentality. Jane Buchan, managing director of hedge fund investor Pacific Alternative Asset Management, said: “The phenomenon of serial correlation in hedge funds returns is distressing.”
June marked a second successive month of losses for many funds as managers were overly bullish and took on too much leverage. Based on performance figures obtained from hedge funds and investors, the only category that held up well was last year’s laggard: convertible arbitrage. These funds take bullish positions on a company’s bonds and a bearish position on its stock.
