At least the hedge funds did better than QCOM ... what a deal, what a steal ... laughter, mirth, chuckle, hardie hahaha ... should have bought gold :0)
online.wsj.com
Hedge Funds Miss Their Target
Some Prominent Names
Are Coming Up Short
Of Benchmarks
By GREGORY ZUCKERMAN
September 13, 2006; Page C1
Some of the most hallowed names in the hedge-fund world are producing very human returns this year.
They've been dogged by confusion about where interest rates, stocks and commodity prices are heading, and poor bets on emerging markets and housing-related shares.
Jack Meyer, the former investment manager of Harvard University's endowment assets, set a record earlier this year by raising $6 billion for his new hedge fund, Convexity Capital. But it has produced returns of roughly 1% so far this year, after accounting for fees charges by the fund, according to people familiar with the results.
Another high-profile start-up, TPG-Axon, a $6 billion fund launched by Dinakar Singh, who previously ran Goldman Sachs Group's in-house trading, was up almost 3% through August after fees, according to an investor.
Mr. Meyer and a representative of TPG wouldn't comment on their results. Neither group discloses its performance publicly.
The Dow Jones Industrial Average is up more than 7% this year, by contrast. The payoff from owning short-term Treasury bills also has been greater than the returns of these prime-time funds. Some hedge-fund investors expect more, since these private investment partnerships, historically for the rich and institutions, are able to make bets on all kinds of global markets -- and in recent years have often scored big.
Meanwhile, the main hedge fund run by iconic investor Louis Bacon at Moore Capital Management was up only about 1.5% through August, while a big Moore bond fund was down about 3%, according to investors. Paul Tudor Jones's $4.7 billion Tudor B.V.I Global Fund Ltd., which makes bets on global "macro" trends, was up less than 3% through August, according to investors, and Richard Chilton's $800 million Chilton International Ltd. fund is down about 3% this year.
Representatives of Tudor, Moore and Chilton wouldn't comment, and don't publicly disclose performance.
Some stars continue to tear the cover off the ball. David Tepper's $4 billion Appaloosa Management LP is up more than 10%, thanks in part to a recent bet in favor of semiconductor stocks, while a number of hedge funds run by Raj Rajaratnam's Galleon Management are profiting, partly from savvy tech bets.
Todd Deutsch's $800 million Galleon Captains Offshore fund is up more than 30% this year, according to investors, thanks to drug stocks and various contrarian calls, such as buying shares of Best Buy Co., which jumped more than 9% yesterday. And James Simons's $10 billion Renaissance Institutional Equities Fund continues to best the market, up almost 13% through August, according to investors.
Overall, hedge-fund returns are in line with markets. Merrill Lynch's hedge-fund index is up about 4% through Aug. 28, compared with a 7.2% gain for the DJ World Index, a rise of 4.3% for the Standard & Poor's 500-stock index, and a gain of 2% for the Lehman Brothers bond index. But hedge funds that focus on stock picking -- so-called long-short managers who buy some stocks and bet against others -- are up a meager 1.4% so far this year, according to the Dow Jones Equity Long/Short (U.S.) Index.
"There's plenty of mediocrity," says Joe Pignatelli, president of Archstone Partnerships, which invests $2.8 billion in various hedge funds. "But funds aren't going out of business. That would make it a much worse year."
Part of the problem is hefty hedge-fund fees. An investor in a typical hedge fund that has earned 15% returns would see those gains dwindle to less than 11% or so after the fund's management and performance fees are deducted.
Rallies in commodities such as oil helped many hedge funds earlier in the year, but the pullback in energy has hurt many big funds sticking to bets in this arena. Some large funds have been hurt by the tumble in oil in the last few days, though some big funds, such as Jeff Gendell's Tontine Management LLC, have been betting against the sector.
Some well-respected funds have been buying up housing shares this year, figuring they are now so beaten up that they are cheap, but those stocks have continued to underperform.
Meanwhile, some funds were riding gains in international stocks, especially emerging-market shares, but those markets have turned tame since May. Moreover, hedge funds tend to buy smaller stocks, believing they can dig out information that isn't yet factored into the market. But small companies have lagged behind larger companies in recent months.
Unlike most mutual funds, it is hard to get an accurate scorecard of performance for hedge funds. That's in part because they don't publish their results on a daily basis, though many do share results with their investors monthly. At the same time, many hedge-fund investors don't compare their returns to benchmarks such as the Dow Jones Industrials or the S&P 500, but rather seek steady returns without wild fluctuations, and thus focus on their performance relative to the volatility of their holdings.
Some managers, such as Mr. Meyer at Convexity, offer their investors various benchmarks as a comparison, and don't charge a performance fee unless returns top those customized benchmarks.
The poor performance lately creates a problem for some hedge-fund managers, who argue that their returns provide diversification for investors, and that they can be higher than market returns. With those returns tracking more closely to market returns, both arguments could be undermined.
As hedge funds grow, and assets stream into the business, some managers may be finding it more difficult to find enough winning ideas -- the more money they manage, the more likely they are to have to reach beyond their best ideas.
At the same time, many managers speak to each other about their views -- making it more unlikely for them to develop unconventional, moneymaking ideas.
For some hedge funds that specialize in stock trading, takeovers and other events in the market, "there is a 'club' mentality, so there could be a contagion effect," as funds buy and short the same positions," says David Kabiller, founding principal of $28 billion AQR Capital Management LLC. |
