Quadriga, Bailey Coates Hedge Fund Declines Exceed 20 Percent
May 23 (Bloomberg) -- Hedge funds overseen by firms such as Quadriga Capital Management Inc. and Bailey Coates Asset Management LLP posted losses of more than 20 percent amid tumult in the financial markets following the credit-rating downgrades of U.S. automakers General Motor Corp. and Ford Motor Co.
The Quadriga Superfund C was down 28.6 percent this year as of May 17 and Superfund B fell 23.2 percent, according to the Vienna-based company's Web site. The Bailey Coates Cromwell Fund declined 20.1 percent in the first four months of 2005, data compiled by Bloomberg show.
``Some hedge funds have been surfing on the edge and they have been caught out,'' said Nigel Bolton, who oversees about $9 billion as head of European stocks at Scottish Widows Investment Partnership in Edinburgh.
The declines of the Quadriga and Bailey Coates funds far exceed the average 1.6 percent four-month drop of hedge funds tracked by Hennessee Group LLC, a New York-based consulting firm that tracks industry returns. The slide occurred as hedge funds attracted a record $27.4 billion in the first quarter, pushing the industry's assets to more than $1 trillion for the first time, according to Chicago-based Hedge Fund Research Inc.
Christian Halper, co-founder of Quadriga, wasn't immediately available for comment. In a statement, London-based Bailey Coates, started two years ago by former Perry Capital LLP analysts Jonathan Bailey and Stephen Coates, said it plans to keep ``the fund going.''
The assets of Bailey Coates's funds have plummeted about 50 percent this year to $635 million, the Wall Street Journal reported earlier today, citing people familiar with the firm.
Rating Cuts
Federal Reserve Chairman Alan Greenspan said in a May 5 speech that the growth in hedge fund assets creates the potential for ``unanticipated losses to investors.'' He also said banks that lend to private investment pools known as hedge funds should strengthen the link between credit terms and the amount of information they receive about the funds' holdings.
Hedge funds are loosely regulated investment portfolios that bet on falling as well as rising securities prices. The industry was hurt after Standard & Poor's cut the bond ratings of GM and its finance company, General Motors Acceptance Corp., two levels to BB, making the world's largest automaker by sales the biggest- ever company to have its debt rated as junk.
S&P also rated Ford Motor's bonds as junk, lowering debt for the world's No. 3 automaker by sales one level to BB+.
Futures Funds
Some of this year's worst-performing hedge funds are those that trade futures. These so-called commodity trading advisers generally make money when futures move either up or down for a sustained period. This year they have lost money as the dollar and oil prices changed direction several times.
John W. Henry & Co., the Boca Raton, Florida-based firm controlled by Boston Red Sox owner John Henry, reported declines of more than 20 percent this year for many of its portfolios. Its Strategic Allocation fund, with $1.6 billion invested in a range of financial and commodity futures, fell 21.7 percent in the first four months of 2005, according to the company's Web site.
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