Soh said managers need to assess whether they can navigate these markets. Those who stick it out must adapt, especially given that investors can park their money in cheaper alternatives, he said.
Hedge funds have been stymied by obstacles including the rise of algorithmic trading and restrictions set after the financial crisis that limit the risk managers can take. The industry’s client base has also broadened over the years. Pension plans and other large investors, for example, are more risk averse than wealthy individuals.
Trading Strategies
Equity hedge funds, which led industry losses last month, have become less trading oriented compared with other strategies and that limits their ability to navigate unsettled markets. The years-long rally in stocks has also led hedge funds to primarily bet on companies more than against them, pushing them toward a trading style that’s akin to mutual funds.
“Volatility only helps when you have an information advantage over the market,” said Don Steinbrugge, managing partner of hedge-fund consulting firm Agecroft Partners. “And most stock funds that focus on large companies in developed markets don’t have that.”
Gulati isn’t giving up, even after two years of losses erased all the gains made since his fund’s inception in 2013.
“What happened in October is long lasting,” he said. “It’s only the start, if anything.”
This story provided by Bloomberg News.