Some Strong Hedge Funds Underperform

September 15, 2012

Some prominent hedge funds which have been reporting strong performances month after month in 2012 reported surprisingly muted performance in July. Among them are Lee Ainslie’s Maverick Fund, Andrew Feldstein’s BlueMountain Credit Alternatives Fund and funds managed by well-known hedge fund manager David Tepper. Maverick fund for example, which has approx. $2.9 billion in assets reported a lackluster 0.14 percent gain in July, far below the 20 percent gain it has registered so far this year. It should be noted though that despite a weak performance in July, 2012 so far has been a major turnaround for the Maverick hedge fund, which lost 14.85 percent in 2011.

The Poor Performers

There are other funds which had similar performances with small returns in July compared to the period since the start of the year. BlueMountain Credit Fund with $4 billion in assets was up 0.67 percent in July, much smaller than the 10.92 percent return it has generated for the year through July 31. David Tepper’s Appaloosa which has almost $5 billion under its Palomino fund has returned 14.31 percent year-to-date, but for July, the hedge fund’s return was only 0.89 percent. Despite a relatively modest July compared to their own performance standards, the performances of these funds were not all that bad when compared to the hedge fund industry average return of roughly 1.1 percent in July.

Few other hedge fund names with similar performance pattern include James Simons’ Renaissance Institutional Equities fund which rose only 0.32 percent in July compared to its 10 percent return for the year, and hedge fund manager Daniel Loeb’s Ultra fund, which grew only 0.2 percent in July compared to 8.98 percent return this year.

Top Hedge Fund Performers

July was a good month for two of the closely followed hedge fund managers Bill Ackman and David Einhorn. The two fund managers outperformed the hedge fund industry average and the broad S&P 500 index in July. Ackman’s $4.5 billion Pershing Square Capital Management fund generated 1.5 percent return in July and is up 3.8 percent year-to-date. Einhorn’s hedge fund Greenlight Capital rose 2.7 percent for the month and is up 6.4 percent for the first seven months of the year. Ackman disclosed in July that he has bought about $2 billion worth of stock and related options in consumer goods giant Procter & Gamble Co. Einhorn’s gain in July is partly due to his short position on Green Mountain Coffee Roasters Inc. (GMCR), which lost 16.6 percent in July.

Paulson’s Waning Flagship

Another closely watched hedge fund manager John Paulson had a mixed July. His Advantage Plus Fund, which seeks to profit from corporate events lost 2 percent in July and is down 18 percent this year. The hedge fund manager’s Gold Fund is also down big this year. It has lost 23 percent year-to-date, though July was a positive month with a gain of 0.2 percent. But Paulson’s merger arbitrage, credit and recovery funds, which comprise more than 60 percent of the hedge fund’s $21 billion in assets, have generated positive returns for the year with Paulson Partners Enhanced fund generating 5.4 percent, Paulson Credit Opportunities Fund returning 3.8 percent and Paulson Recovery Fund gaining 3.9 percent in the first seven months of 2012.

Despite the weak average returns by the hedge industry this year, it appears that there are some hedge funds that are able to significantly outperform the industry averages. However, for the month of July, hedge funds on average continued to underperform the broader market in July with return of 1.1 percent compared to 1.4 percent gain for the Standard & Poor’s 500-stock index.

This reflects the defensive approach of the fund managers and as such the hedge fund job market will likely remain weak in the near term.

{ 1 comment }

Maryann September 21, 2012 at 10:06 am

Very happy to see you covering this topic. Thanks so much

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