| Hedge funds bounce back from past market turmoil |
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| 28/10/2007 | |
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Hedge funds have historically shown the ability to recover more quickly than global debt and equity markets in the 12-month period following financial turmoil, according to Credit Suisse/Tremont, which examined the effects of five crises on hedge funds and world financial markets. "Although there are certain sectors that fared better than others during such periods, it is unclear whether one hedge fund strategy is more resistant to market shocks than others," concludes the report. "However, as an asset class, hedge funds have remained less volatile and have retained positive performance throughout most crises." Meltdowns During the Asian financial crisis in mid-to-late 1997, Tremont's hedge fund index returned 23.62% from July 1997 through June 1998. Emerging markets suffered the most, down -17.6% during the same period. Other strategies such as global macro and long/short equity returned 40.5% and 26.1% respectively. During the Russian debt crisis and the unwinding of LTCM in late 1998, a number of strategies such as event driven and emerging markets suffered materially. Managed futures, however, posted a 15.8% gain from July 1998 through June 1999. Long/sort also rebounded quickly, returning 17.2% during the same period, demonstrating that the diversification of strategies offered some protection even as the asset class as a whole was adversely impacted. During the period following the burst of the dot com bubble, hedge funds generally maintained flat returns in the face of sharp drops in equity markets. Yet certain strategies posted remarkable returns. Convertible arbitrage, global macro and managed futures returned 31.7%, 20.4% and 13.2% from April 2000 through March 2001. Following the attacks on the World Trade Center on September 11, 2001, emerging markets and long/short equity were at first among the worst performers, but emerging markets bounced back and returned 7.45% from July 2001 to June 2002. Following the credit crisis of 2005, convertible arbitrage and managed futures returned negative returns. Still, most other strategies retained positive performance amidst declining government bonds. The results may help explain why hedge funds were resilient in the aftermath of the sub-prime credit crisis. An index of hedge funds run by Hedge Fund Research rose 2.98% last September, after dropping 1.31% in August. A similar index by the Hennessee Group gained 2.26% in September, after dropping 0.96% the previous month. VB |
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