Hedge Funds Suffer August Declines, Surrendering 2011 Gains

(September 12, 2011) —  New data from Hedge Fund Research shows that hedge funds have lost 2.32% in August and a total of 1.2% for this year. 

The firm revealed that the hedge fund decline in August was the industry’s steepest drop since May 2010, during the pinnacle of the Eurozone’s debt crisis. “The volatile environment for hedge funds in August exhibited certain similarities to the financial crisis of 2008, but exposed key differences, with significant implications for both investors and hedge fund managers,” stated Kenneth J. Heinz, President of HFR, in a statement. “Similar to 2008, equity and credit-sensitive strategies were the weakest area of performance while macro systematic funds were tactically positioned for the volatile environment.”

Heinz continued: “In contrast, however, financial markets maintained liquidity in August, with risk dynamics concentrated in developed market sovereign credit and employment, as opposed to 2008, when the overhang of excessive levels of private consumer and mortgage debt were the primary catalysts.”

According to the firm, hedge funds, as well as broader financial markets, were negatively impacted by the combination of continued and accelerating concerns relating to the European sovereign debt crisis, the debate surrounding the US debt ceiling, the downgrade of US Treasury securities, and evidence of general economic and employment weakness in the US.

The weakest areas of hedge fund strategy performance in August included Equity Hedge and Event-Driven strategies, which declined by -4.1% and -3.7%, respectively. Both strategies posted their fourth consecutive month of negative returns, the longest drawdown since 2008.

Meanwhile, funds of hedge funds dropped 2%, leaving them 1.9% lower this year, the firm found.