Some people believe hedge funds are near dead and ready to leave the face of the Earth. If you listen to the media, it seems like hedge funds failed in every way possible.
It is true that being a hedge fund manager was not a walk in the park during 2008, but it was better than a lot of things (e.g. long-only money managers or managers that can only trade stocks and bonds). On a relative basis, most hedge fund strategies still outperformed the overall market (as measured against indexes such as the S&P 500 or the Dow Jones Industrial Average).
[You can get a sense of how the hedge fund industry did in 2008 and has done in 2009 by looking at benchmark indexes such as the Credit Suisse Hedge Fund Index.]
What drove the bad performance?
It was hard to make money in 2008. Part of the bad performance was due to making the wrong macro call on the economy (Individual security selection was pretty much useless).
Redemptions (i.e. investors taking their money out) also created a lot of disruption because it forced managers to sell securities before they had planned. Managers running long-term strategies such as buying distressed securities exited positions and took big losses.
However, even after adding all this up, hedge funds outperformed the market in 2008 (on average). And as shown in the graph below, it seems like they’re back in the game and “en fuego”.
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