October was humbling for many hedge funds, including some of the $3.2 trillion industry’s biggest names, as sinking stock markets took a bite out of returns and could pave the way for more redemptions in the next months.
Global hedge funds that bet on and against stocks lost an average 5.39 per cent last month, according to data released on Thursday by Morgan Stanley, which helps hedge funds secure financing and make trades. For U.S. so-called long/short equity funds, the average loss stood at 5.72 per cent.
Analysts said these losses are likely to grow as many firms are still finalizing last month’s returns, and it could take a few more days to get an accurate picture, especially among funds that bet heavily on technology companies.
“Oh what a ride - It truly has been a wild market environment in the past weeks,” Deep Field Capital, a firm based in Zug, Switzerland wrote to investors, informing them that its Singularity Program lost 6.58 per cent last month. For the year it is now down 18.05 per cent.
Reuters reviewed investor updates sent by the funds.
Activist investors, which typically push for management changes, including Barry Rosenstein’s Jana Partners and William Ackman’s Pershing Square gave back a lot of this year’s gains as the Standard & Poor’s 500 Index fell 6.9 per cent last month. Because activists traditionally make long bets, they were particularly vulnerable when stocks tumbled on fears that the U.S. economy may be overheating and that corporate earnings at tech companies may be slowing.
Jana Partners lost 6.3 per cent, marking its biggest monthly loss since the financial crisis while Pershing Square Holdings was off 8.3 per cent during the first 3-1/2 weeks of October. Both funds are still in the black for the year with Pershing Square up 6.2 per cent and Jana Partners up 2.4 per cent.
Ancora’s Catalyst fund, which pursues activism at smaller companies, lost 1.3 per cent in October and is up 2.7 per cent for the year, according to an investor update.
Much of the pain was concentrated among funds that pick stocks and so-called quant funds that rely on computer models to help make investments.
Samantha Greenberg’s Margate Capital Management, which often makes tech investments, lost 3.6 per cent but remains up 4.4 per cent for the year. North Run Capital Partners, which invests largely in tech and consumer discretionary stocks, lost 6.2 per cent last month and is down 6.0 per cent for the year. Quant firm Renaissance Technology’s Renaissance Institutional Equities Fund, the oldest portfolio open to outsiders, lost 2.3 per cent in October but is up 7.24 per cent for the year, an investor said.
Hedge funds often say they protect clients on the downside, but several investors said that early returns show this isn’t always the case.
“I think investors are going to be very impatient now and while one month’s numbers generally don’t mean much, October’s numbers will be closely scrutinized and after a string of poor returns people will be ready to pull the plug,” said one investor who asked not to be named for fear of angering the hedge funds he works with.
There were some bright spots as some global macro funds that make bets on stocks, interest rates and currencies around the world fared well.
Robert Gibbins’ Autonomy Capital gained 6.4 per cent in October, helped by bets on Brazilian interest rates and currency plays in Argentina. For the year, it is up 14.9 per cent. Said Haidar’s Haidar Capital Management’s Jupiter fund told investors that its preliminary returns show the fund being nearly flat in October and up 21.36 per cent for the year.
Representatives for the funds declined to comment.