A tail risk fund managed by Gramercy, a Greenwich, Connecticut-based investment firm that oversees more than $2 billion, gained 9.8 percent in September and is up 29 percent since its May 1 inception, according to a person familiar with the fund's returns.
The managers profited as the VIX index, a measure of stock- market volatility known as Wall Street's "fear gauge," more than doubled in the past two months.
A measure of price swings over a 30-day period for the Markit CDX North America Investment Grade Index, a credit- default swaps benchmark used to hedge against losses, tripled since May, reaching the highest in 14 months, prices from Markit Group Ltd. show.
The index, which rises as investor confidence deteriorates, soared to 135.9 basis points on Sept. 12, the highest level in more than two years, from 91.9 at the end of June.
Company bonds rated below BBB- by Standard & Poor's and lower than Baa3 by Moody's Investors Service lost 4 percent in August, the biggest loss since November 2008, according to Bank of America Merrill Lynch index data. The S&P 500 Index decreased 5.4 percent last month, including reinvested dividends, and has dropped 10.7 percent since the end of June through yesterday.
Hedge funds globally declined 4.8 percent in the seven weeks ended Sept. 12, according to a Hedge Fund Research Inc. index of preliminary data that tracks 40 firms. A broader gauge of the Chicago-based research firm fell 2.3 percent in August, the worst month since May 2010.
Billionaire investor John Paulson's Advantage Plus Fund, which seeks to profit from corporate events such as takeovers and bankruptcies, lost 15 percent in August, two people familiar with the firm said last week. The rout extended the fund's loss this year to 34 percent for Paulson, who has been betting on an economic recovery by the end of 2012.
Some credit strategies that seek to avoid big bets on the direction of the economy, known as long/short funds, gained or outperformed the market last month, including New York-based Saba's flagship $3.65 billion fund, which rose 2.5 percent, a person familiar with the fund said last week.
BlueMountain Capital Management's Credit Alternatives Fund, which seeks to profit from dislocations between bonds, loans and derivatives, fell 1.89 percent in August, leaving its gains for the year at 3.06 percent, according to a note to investors. A spokeswoman for the firm declined to comment.
PAMLI Capital Management LLC's $115 million PAMLI Global Credit Strategies fund gained 5.02 percent, according to a person familiar with the fund's performance. The firm was founded in January by former Highbridge Capital Management LLC portfolio manager Faisal Syed.