Hedge Fund Returns Suffer in 2010 Amid Europe Crisis

(July 14, 2010) — Hedge fund returns have continued to drop in 2010 as concerns that the sovereign debt crisis in Europe may thwart a global economic recovery persist.

The decline reflects recent expectations by Byron Wien, vice chairman of Blackstone Group LP’s advisory services division, who said during the Monaco-based GAIM International hedge fund conference that hedge fund returns may halve as firms seek to protect investors’ capital.

Hedge funds have been struggling this year amid signs of a global economic downturn, following 2009’s strong year, when hedge funds returned an average 20%. Hedge funds lost an average of 0.5% in June after losing 2.6% in May, with the overall sector posting a negative 0.02% for the current year, according to the Eurekahedge Hedge Fund Index, which measures the performance of more than 2,000 funds worldwide.

In related news, a recent study by Northern Trust Global Advisors (NTGA) shows institutional investment managers have moderated their expectations for global growth. The study revealed institutional investment managers are less optimistic about near-term global growth and more concerned that the Euro debt crisis will continue to affect markets for at least another six months.

“I think the survey shows managers are worried about the global economy in general, since the US economy is linked to the global economy” said Northern Trust’s Janet Yang to ai5000.

The second-quarter survey reflected a significant shift in optimism from the prior four quarters, with more than two-thirds of respondents expecting sovereign debt concerns in Portugal, Italy, Ireland, Greece and Spain to negatively impact global markets. Seventy-five percent of those surveyed anticipate that global growth will remain the same or decelerate.