Hedge Fund Crossroads: Survey finds many have “no confidence” in own market timing, yet their net exposure is on the rise.
Oct 7th, 2009 | Filed under: Hedge Fund Industry Trends, Today's Post
If there’s one prevalent complaint among investors of all stripes, it’s that the majority of hedge funds “didn’t do what they were supposed to” during last year’s market collapse and subsequent economic downturn: hedge.
Which begs the question, “How good are hedge fund managers at predicting the future direction of markets anyway?”
A series of reports in the past week seem to suggest that although hedge fund managers aren’t sure which way markets are going, they aren’t complaining about rising markets.
“Creative Tension”
According to a recent survey of hedge fund managers and other investment executives by RBC Capital Markets (conducted by the Economist Intelligence Unit), some 46% of these executives said they have low visibility about the macro environment, with “little or no confidence” in their ability to predict the direction of prices and rates in global financial markets (equity, debt, foreign exchange) over the next year.
Curiously, a fewer number (30%) said they lacked confidence in their ability to look out generally 12 to 24 months ahead.
There was little agreement. Two in five (42%) said they expected a gradual recovery over the next year, with growth resuming at a below-trend rate over the following year. But one-third (32%) were bearish, saying they did not anticipate a meaningful recovery for at least one year, followed by negligible growth at best.
“Fund executives believe that full recovery will be a slow, difficult process,” Marc Harris, co-head, Global Research, RBC Capital Markets, said in a release accompanying the report. “However, one of the benefits of the current climate of anxiety and uncertainty is that it produces a creative tension that can help make markets.”
Won’t get fooled again?
While we agree that it takes bulls and bears to make a market, we can’t help but notice that many hedge fund strategies still have a positive correlation with equities. A recent Goldman Sachs report showed that hedge fund long exposure was back at pre-Lehman levels (chart below): More…
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