Hedge Fund Directory

Continuing the recent spate of not so positive publicity focussed on Hedge funds, Wall Street Journal has published another article “Hedge Funds Feel New Heat” on some of the recent news from the hedge funds and some prediction on the trends(To read complete article, visit www.wsj.com).

The return for the hedge funds in general have taken huge hits in last two months and it is again reconfirmed by the news from the article that “Last month alone, so-called “quantitative” hedge funds (which make investments based on sophisticated mathematical formulas) fell 6% as a group, according to data-tracker Hedge Fund Research Inc.”

One of the main reasons for the investor flight from some of the hedge funds is the uncertainty felt by investors on the actual value of the investments held by the funds. “The most-successful fund managers enjoy celebrity-billionaire status, even as regular investors struggle to figure out what they are up to. This opacity, though, is now hurting hedge funds.

Investors are pulling back, worried as they watch assorted financial institutions suffer from bad trading bets.” This is especially true for those funds with significant exposure to credit markets. “Hurting funds like these is the fact that investors are increasingly fretting about how they value their holdings.

The risk is that funds may be overstating returns, or that they simply don’t know with certainty what their holdings may be worth, given the difficulties in the credit markets.

Lara Price, head of research for Octane, a firm that invests in hedge funds, says her firm has become more worried about whether the results of some debt-focused hedge funds reflect their true value, as more of their investments become difficult to trade.”

So if one side of the story is the tough times faced by a section of the industry, the other side is that some of the hedge funds with different strategies are proving to be quite solid and hence popular with the investors.

“A subset of funds that simply buy a portfolio of stocks while simultaneously betting on other stocks to fall — known as “long-short” funds — are currently in vogue. Funds like these gained 10.5% last year and are down just 1.7% in 2008, soundly beating the market in both periods, according to fund-tracker Hedge Fund Research.

One of the hottest variants is one of the simplest: so-called 130/30 funds. These generally invest $130 in stocks they think will rise in price, then bet against $30 of stocks the fund considers overpriced. In a rough market, this strategy can be appealing because if the market does fall, the fund still stands to make at least some money on the bearish bets.

Investment funds using this style, including mutual funds, could manage as much as $1 trillion in three years, according to Merrill Lynch, up from almost nothing just two years ago and $75 billion today.”