Tough time for hedge funds, figures reveal

Hedge funds have sharply cut back on bets and are less willing to make punts on market moves after a tough June in which turbulence over Greece's debt crisis left managers nursing further losses.

Hedge funds found few bets,  calling market direction or trying to buy cheap stocks and go short on expensive ones, worked in a month dominated by worries over Greece's attempts to push through austerity measures needed to secure a bailout.

‘It's not been a good month. Some strategies that were a bit crowded. Long commodities, long gold, short dollar didn't perform well,’ one broker told Reuters.

Hedge funds lost 1.6% in June, according to Hedge Fund Research's HFRX index, lagging the FTSE 100's 0.7% fall.

After losses of 1.2% in May, according to the broader HFRI index, it takes losses this year to 2.1% with big names such as Paulson and Moore Capital in negative territory.

Funds lost out across the board. London based Harmonic Capital, which runs $820 million in assets, saw its flagship global macro fund fall 6.65% in June, while Atlantic Investment's long only Cambrian hedge fund, which focuses on mid-cap US industrials, lost 4.9%.

Publicity shy Lansdowne Partners' flagship $8.6 billion UK hedge fund slid 0.75%, while its long only UK Strategic Investment fund lost 4.1%, as did Henderson's UK Equity Long Short fund, according to Lipper.

‘During May and June, things definitely turned round and there was fairly indiscriminate selling. That made it a fairly tough environment to deliver returns,’ said one hedge fund executive who asked not to be named.

Commodity focused funds, hurt after a sharp sell off in early May, also suffered after the International Energy Agency's shock announcement on June 23 that it would release 60 million barrels of oil from strategic stockpiles.

RAB Special Situations is down an estimated 3.1% from the end of May to June 23, while RAB Energy fell 4.9% over the month to June 30.

‘It is no secret that we are in fairly brutal bear market conditions for mining shares,’ said RAB Special Situations' listed vehicle this week.

Many managers, lacking conviction on how to invest, have now cut their bets, both overall punts on rising and falling stocks and their exposure to market moves.

‘Gross exposures have been reduced and net exposures have been reduced, so people are less directional in the market,’ said Sean Capstick, co-head of EMEA prime brokerage at Bank of America Merrill Lynch.

Pedro de Noronha, whose Noster Capital lost 0.5% in June but is up 7.5% for the year, has cut the fund's exposure to markets over the past two months. ‘We are still very defensively positioned as we believe that markets are significantly overestimating the earnings power of indices in 2011 and 2012. There is very little cushion in the markets for those who are participating without the proper hedges in place,’ he said in a note to investors.

And while investors looking for ways to exploit choppy markets continue to pour money into the $2 trillion hedge fund industry, some poor performing funds have sold positions to build cash in anticipation of client redemption requests.

‘Some managers wouldn't be surprised if some investors ask to come out of their funds. The general feeling is that they're all well aware performance has been challenging,’ said the prime broker who asked not to be named.

Elsewhere, computer driven funds, which suffered in the commodity sell off at the start of May and which often prefer discernible trends to short-term volatility, were hard hit again.

Man Group's $23.9 billion AHL fund fell 3.2% between May 30 and July 4, while Winton Capital, one of Europe's biggest hedge fund managers with $22.4 billion in assets, saw its flagship fund fall 2.5%.
France based Numbers GDF Program lost 6.3%, taking year to date losses to 15.7%, while QCM's $820 million Global Diversified Programme dropped 4%.