The eight months through August were ugly: Bridgewater Associates’ flagship fund lost 18.6%; Renaissance Institutional Equities was down 13%; Winton’s main fund slumped about 19%; Hintze’s CQS hedge funds fell 42.5%; while Lansdowne Developed Markets Fund was down almost 22%.
With the U.S. election around the corner and a raging pandemic still causing havoc across continents, there’s little sign that the volatility that bled hedge funds is on the wane.
“Market fragility remains elevated and speed is also high, meaning sharper but shorter duration moves are more likely to occur,” said Adam Jones, a partner at investment advisory firm Albert E Sharp.
Even before the pandemic, investors were questioning the high fees charged by hedge funds for mediocre returns. Until now, many got away by blaming the lack of volatility for their woes -- so 2020 should have potentially provided their best trading opportunity in years.
Not all large hedge funds have disappointed. Multi-strategy firms such as Citadel, Balyasny Asset Management and Millennium Management, which rely on dozens of traders to generate profits, are having one of their best years. Such funds are typically dominated by trading-oriented strategies and volatility tends to create more opportunities for them.
Some macro hedge funds run by the likes of Brevan Howard Asset Management, Rokos Capital and Caxton Associates have also churned out bumper profits. But they hide a truer picture of an industry which continues to struggle.
One reason why smaller funds are doing better is that they’re jumping on very niche trading opportunities that just don’t have capacity for the billions of dollars their larger peers need to invest.
“The irony is that the hedge fund industry was built on investing with small, nimble managers who could exploit esoteric investment opportunities,” said Andrew Beer, founder of New York-based Dynamic Beta investments. “The last several years have shown that sometimes big might be too big, especially when fees consume most performance.”
This article was provided by Bloomberg News.