Excerpt from an article in today's G&M by Eric Reguly
.....Unofficial data on about 100 of the leading funds (and circulating among the fund managers) suggests September was the worst month for this particular group of hedgies in years, maybe ever, as no investing strategy worked its magic. All but about 10 of the 100 lost money in September. About 30 of them lost 10 per cent or more, and many 20 per cent or more, with Tontine landing at the bottom of the pile. “Anything we touched, we lost money on,” a Canadian hedgie said.
More comprehensive data from Hedge Fund Research of Chicago said the average hedge fund shed 4.7 per cent in September, taking the loss this year to 9.4 per cent. The October stock-market slaughter, which saw the world's major indexes drop about 20 per cent, is bound to make the October returns even worse.
Any fund that was bullish on energy, commodities and basic materials, or didn't protect themselves from their plunge, is in for a shock. Take Potash Corp. Until a few weeks ago, some analysts had $300 (Canadian) targets on the Canadian producer of potash and nitrogen for crop fertilizers. The shares Sunday traded in the low $90s, a country mile away from the $241 high.
To be sure, the hedgies' losses this year are less than, say, the average mutual fund loss. But that's not the point. These guys were supposed to make fat returns in any kind of bull or bear market and were paid handsomely to do so – generally a 2-per-cent management fee plus 20 per cent of the profits. They were supposed to be smarter than you and me. And for a long time they seemed to be, at least until the big test came.
Some, perhaps many, hedge funds will collapse as they get overwhelmed by investor redemptions; a few have already disappeared, including Ospraie Management's flagship fund. The survivors will become more conservative with leverage, reduce their overheads – goodbye high-priced non-talent – and no doubt cut their outrageous fees. Citadel is already launching a new family of cheapie funds.
Mostly, we hope, they will stop strutting around like roosters and learn a little humility. The hedge fund managers are not gods, as September proved, nor even that smart. Now how about giving back the mansions the investors paid for?
