Hedge funds de­cline in Novem­ber amid Europe debt cri­sis

The Pak Banker - - International3 -

NEW YORK: Hedge funds de­clined the most in six months in Novem­ber as the Euro­pean debt cri­sis pushed stock mar­kets lower across the globe.

The Bloomberg ag­gre­gate hedge fund in­dex fell 1.5 per­cent, the most since May, when a sud­den sell­off in stocks known as the "flash crash" prompted in­vestors to cut risk. Long-short eq­uity funds, whose man­agers can bet on ris­ing and fall­ing stocks, dropped 1.6 per­cent last month and gained 6.1 per­cent since the start of the year.

Global stocks slumped 2.3 per­cent in Novem­ber amid con­cern Europe's debt turmoil may en­gulf Spain and Por­tu­gal af­ter a bailout of Ire­land failed to per­suade in­vestors that the cri­sis will be con­tained. Stan­dard & Poor's said last week it may cut Por­tu­gal's credit rat­ing. Prime Min­is­ter Jose Socrates has re­jected sug­ges­tions the coun­try may need a bailout.

Europe is "on the verge of col­lapse," James Melcher, founder of New York-based hedge fund Balestra Cap­i­tal Part­ners LP, said last week at the Hedge Funds New York con­fer­ence, or­ga­nized by Bloomberg Link. "Ger­many may leave the euro with a cou­ple of stronger coun­tries."

The main Bloomberg hedge fund in­dex is weighted by mar­ket cap­i­tal­iza­tion and tracks 2,627 funds, 1,198 of which have so far re­ported re­turns for Novem­ber. The in­dex fell to 116.71 last month, com­pared with a peak of 130.38 in July 2007.

The Novem­ber losses pare re­turns this year to 3.8 per­cent on av­er­age, com­pared with a 6.7 per­cent rally in global stocks, as mea­sured by the MSCI World In­dex. Stock mar­kets sta­bi­lized in the sec­ond half, helped by the U.S. Fed­eral Re­serve's de­ci­sion to buy an ad­di­tional $600 bil­lion in Trea­suries to lower bor­row­ing costs and stim­u­late the econ­omy. Macro funds, whose man­agers seek to profit from global themes or trends, failed to profit from the dis­lo­ca­tions in Europe, de­clin­ing 1.1 per­cent in Novem­ber. They're still up 2.1 per­cent this year. Mul­ti­strat­egy hedge funds fell 1.5 per­cent last month to bring gains for the year to 1.7 per­cent.

"The Euro­pean debt cri­sis and QE2 are both hav­ing some un­pre­dictable im­pacts on as­set pric­ing," said Adam Suss­man, the New York-based di­rec­tor of re­search at Tabb Group LLC.

Hedge funds in­vest­ing in as­set-backed se­cu­ri­ties had the biggest Novem­ber loss of any strat­egy, fall­ing 5.2 per­cent, for a year-to-date re­turn of 15 per­cent. Hedge funds that aim to cap­i­tal­ize on the price in­ef­fi­cien­cies of fixed-in­come se­cu­ri­ties gained the most of any strat­egy, in­creas­ing 0.2 per­cent last month and 11 per­cent since the start of the year.

Funds seek­ing to profit from merg­ers and ac­qui­si­tions de­creased 2.3 per­cent in Novem­ber and 0.2 per­cent this year. -Bloomberg

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