08/17/2011

August Returns Show Funds Beating Market

Despite some high-profile flops, hedge funds as a whole outperformed the S&P 500 index amid the extreme market turmoil earlier this month, according to two industry gauges.

Paulson & Co. made headlines for ever-deepening losses in its Paulson Advantage Fund Plus, which fell about 10% during the first two weeks of August and is down more than 30% year to date. A Maverick Capital fund fell 11% during the first half of the month.

But an index maintained by Lyxor Asset Management tells a different story. Lyxor Hedge Funds Tracker, a composite of 100 large funds around the globe, fell 3.5% from Aug. 1 to Aug. 9, compared to a 9.2% drop for the S&P 500. Year to date, the Lyxor index was down 5%, versus 5.7% for the S&P.

A broader snapshot comes from Morgan Stanley’s prime brokerage, which has hundreds of hedge fund clients. During the first five days of August, the average fund in Morgan Stanley’s stable fell 2.3%, versus a 7.2% decline for the S&P 500 and an 8.5% drop for the MSCI World Index, the bank advised its clients last week.

The results mirror the industry’s performance during the financial crisis. In 2008, hedge funds lost an average of 18% — versus a 38% decline for the S&P 500.

Lyxor, a unit of Societe Generale, has access to some of the most current performance data because it invests with fund operators through separate accounts, which provide clients with greater transparency and liquidity than what’s typically available via commingled funds.

Only 22 of the 100 vehicles in Lyxor’s managed-account program were up during the first nine days of August. The top performer: Lyxor Island Drive Offshore Class A, a net-short strategy that gained 11.7% during that period. For the year, however, the vehicle was down 7.8% through Aug. 9. The biggest loser was Lyxor Trellus Offshore Fund, which sank a whopping 18.9% from Aug. 1 to Aug. 9. For the year, it was barely negative heading into August.

Among strategies tracked by Lyxor, the worst performer was special situations, down 7.8% for the Aug. 1-9 stretch and 11.6% year to date. The best-performing strategy was short-biased, which gained 11.3% in the August period but was still down 8.2% for the year.

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