The Road Ahead for Hedge Funds: Pot holes or sink holes?
Jul 16th, 2008 | Filed under: Hedge Fund Industry Trends
As Dow Jones points out today, hedge funds were “hard hit by the downturn on equity markets for the first half of 2008″. They cite new Morningstar data showing that US-based equity hedge funds are down over 2% for the year. Hard hit? Yes. But not compared to long-only funds - down nearly 12% YTD.
In fact, Morningstar’s own press release yesterday observed:
“Overall, hedge funds, including funds of hedge funds, buffered the traditional stock and bond markets over the second quarter. Equity and bond markets saw losses all over the world, while the Morningstar Fund of Hedge Funds Index gained 1.43%.”
The Morningstar release goes on reveal that performance chasing is alive and well in Hedgistan. While we have reported extensively about the flow of assets from smaller hedge funds to larger hedge funds, Morningstar’s data shows that money is also flowing quickly from stinky funds to ones that have maintained their bouquet through the credit crunch:
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How can one compare the performance of hedge funds with long only equity funds? One of the selling points of hedge funds is that they are uncorrelated with the equity market, and therefore the comparison is out of place!
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