The widespread suffering in the hedge fund industry has drawn a lot of attention to the 90 percent or so of funds that have lost money this year and has fueled speculation about how many will close and just how bad year-end redemptions will be.
Often overlooked are the relative handful of funds that will post substantial gains in 2008. Managers who are beating the market include well-known names like Alan Howard, whose Brevan Howard Asset Management was up 16.3 percent year-to-date through early November, and Bruce Kovner, whose Caxton Global Investment was up nearly 10 percent. Howard’s is among a number of British funds having a stellar year; others include John Horseman’s Horseman Global Fund (up 23 percent), Man Investments’ Man AHL Diversified (up 20 percent) and David Harding’s Winton Futures Fund (up 13 percent).
In many cases, the managers who are doing well have been drawing on computer-driven strategies designed to latch onto trends. Multistrategy tacks have paid off too. Many have shorted the crumbling market; these include John Paulson, whose Paulson & Co. portfolios, which shorted financial companies while buying credit default swaps on the sector, are up 10 to 30 percent.
Brevan Howard, the $26 billion macro fund, early in the year bet on the Federal Reserve Board to cut interest rates. In the first half of the year, Winton Futures rode a 25 to 30 percent exposure to commodities — including 11 percent in energy — and had some summer reversals but is up again and now has 95 percent of its assets in Treasury bills.
The ability of such funds to stay above the break-even point when many about them are losing their shirts suggests that the winners will be money magnets in 2009. “If you have the ability to get through this with no red on your sheet, you will look attractive,” says Matthew Simon, an analyst at TABB Group, a New York–based financial and advisory firm. Of course, making money in 2008 is no guarantee of new capital in 2009. Struggling funds have erected gates, locking up a great deal of hedge fund capital, and clients who need liquidity will pull what they can from successful holdings.
Being above water is nice, but it doesn’t necessarily protect a fund, notes William Knight, co-founder of $18 billion Pacific Alternative Asset Management Co.: “Even managers up 5 percent, 7 percent, are having redemptions.”
