Keeping up with the (A.W.) Joneses

6 September 2007

Amid carnage at several high-profile US and European hedgefunds in August, it seems that smaller regional players fared much better.  With credit-dependent strategies taking it on the chin last month (the HFRX Macro Index, for example, was off 7.4%), it turns out that Asia’s equity long/short-dominated hedge fund industry is doing just fine.  This Reuters story on Friday made the case that,

“Even though a fund run by Australia’s Basis Capital became the region’s first major victim of the global credit squeeze, the dearth of Asia-Pacific funds investing in credit markets means it should suffer less than global peers…these types of debt-focused funds were the exception, not the rule, in the $150 billion (75 billion pound) Asia-Pacific hedge fund industry.”

You may recall Alpha Magazine’s ranking of the top Asian-based hedge fund managers (see related posting, ranking). The  story accompanying the ranking also noted the dearth of old-fashioned equity long/short managers in Asia.  In fact, 4 of the top 5 largest funds were of the simple equity long/short variety.  (The HFRX Asian regional indexes were actually up several percent in August). 

Reuters also notes this phenomenon in the same article:

“Research firm HedgeFund Intelligence estimated that 74 percent of the assets of hedge funds dedicated to investing in the Asia-Pacific were managed on a long/short equity basis…This compared with just 30 percent of hedge fund assets in the United States and the rest of the Americas.”

This story out of South Africa seems to suggest that less exotic, less levered (and therefore less credit-dependent) strategies may come out okay there too.  Carl Liebenberg, CEO of Johannesburg-based Clade Investment Management and joint manager of the South African Hedge Fund Index tells South Africa’s Business Report that his country’s hedge funds seem to be relatively immune to any global hedge fund contagion.  Apparently, South African funds are only down around 0.5%.

Nordic hedge funds also seem to have held their own in August.  With over a quarter of funds reporting as of press time, the HedgeNordic Index is down only 0.72% on the month.  That index is also dominated by what is termed “equity” strategies. 

The Canadian industry is tracked by the Scotia Capital Canadian Hedge Fund Index which is also dominated by good old fashioned, unlevered long/short funds.  Although August results are not yet known, anecdotal evidence from some large Canadian funds suggests that many may have also escaped August’s turbulence relatively unscathed. 

In the US, Morningstar says that long/short mutual funds were down 0.92% month-to-date as of August 30.  This is about the same as the returns from traditional mutual funds (to which many long/short funds tend to be highly correlated).  And this too beats broad measures of industry returns (such as the -2.5% posted by the HFRX Global Hedge Fund Index). 

In 1995, hedge fund manager and author Ted Caldwell proposed that un-levered, bottom-up, stock picking long/short funds be known as “Jones Model Funds” in honour of Alfred Winslow Jones, the man who is often considered to be the first hedge fund manager.  While we don’t know enough about the constituents of the Asian, South African, and US equity hedge fund indexes to declare them “Jones Models”, it’s safe to say that Jones (who passed away in 1989) would likely have recognized these funds a lot quicker than he would have recognized one of today’s exotic, levered and more complex global macro or quant funds. 

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One Response to “Keeping up with the (A.W.) Joneses”

1. Friday links: reluctant rebate « Abnormal Returns Says:
   September 7th, 2007 at 11:04 am

   […] All About Alpha on how hedge funds outside of the U.S. and Europe have performed during the credit crisis. […]