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Nice gain for hedge funds in '13 but they still fell way short

Jan 8, 2014 @ 9:23 am

stocks, s&p 500, equities, hedge funds, returns, performance
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Hedge funds trailed the S&P 500 for the fifth straight year in 2013 as U.S. markets rallied to record levels.

Hedge funds returned an average of 7.4% for the year, after a gain of less than 0.1% in December. The Bloomberg Hedge Funds Aggregate Index is down 1.8% from its July 2007 peak. The index is weighted by market capitalization and tracks 2,257 funds, 1,264 of which have reported returns for December.

Funds lagged behind the S&P 500 by 23 percentage points last year, the most since 2005, as the U.S. benchmark surged 29.6% for its best performance since 1997. Hedge funds fell short of investor expectations as clients targeted net returns of 9.2% from their investments in 2013, according to a 2013 investor survey from The Goldman Sachs Group Inc. Stocks rallied last year amid gains in consumer confidence and a housing rebound in the world's biggest economy.

“Hedge funds are always going to underperform the S&P 500 in a year like this,” said Jay Rogers, president of Alpha Strategies Investment Consulting Inc., which advises hedge-fund clients and managers. “Hedge-fund managers, if they're doing what they should be doing, are hedging. Anyone who had any kind of short position last year had bad performance.”


Multistrategy hedge funds increased 6.8% last year and 0.9% in December, according to data compiled by Bloomberg. Macro managers fell 2.2% in 2013 after rising 0.9% last month. Long-short equity funds, which bet on rising and falling stocks, rose 11% last year after posting a 1.1% December gain.

Hedge funds last beat U.S. stocks in 2008, when they lost a record 19% and the S&P 500 declined 37%. They outperformed the index by the most when they returned 31% in 1993, according to Hedge Fund Research Inc., compared with a 10% increase for the S&P.

Funds run by Elliott Management Corp. and Bridgewater Associates posted yearly gains, while BlueCrest Capital Management's BlueTrend strategy fell. Long-short equity and multistrategy managers reported average increases in 2013 and macro funds, which bet on broad macroeconomic themes, lost.

Elliott International rose 12% in 2013 after gaining 0.9% in December, according to a performance update obtained by Bloomberg News. Elliott, with $23.9 billion in assets, is run by Paul Singer.

Bridgewater, the $150 billion firm run by Ray Dalio, rose 5.3% in 2013 in its Pure Alpha II fund after falling 0.8% in December, according to a person familiar with the matter.

BlueTrend, BlueCrest's computer-driven hedge fund, fell 3.1% in December and declined 12% last year, according to a performance report obtained by Bloomberg News. BlueCrest was founded by Michael Platt.

Renaissance Technologies, the $25 billion investment firm founded by Jim Simons, posted an 18% gain last year after remaining unchanged in December in its Renaissance Institutional Equities Fund, according to a person familiar with the matter.

MKP Capital Management, the $8.5 billion global macro and credit hedge-fund firm, gained 11% in 2013 after rising 0.9% in December in its $2.4 billion MKP Credit fund, managed by Nilam Patel and a team, according to a person familiar with the matter. MKP Opportunity, a $4.8 billion global macro fund run by Patrick McMahon and a team, climbed 7.1% in 2013 after increasing 1.1% last month, the person said.

Hutchin Hill Capital, the $1 billion hedge fund founded by Neil Chriss, returned 19% last year after gaining 2.4% in December in its Hutchin Hill Diversified Alpha Master Fund, according to a person familiar with the matter.

Moore Capital Management, the $12.1 billion hedge-fund firm run by Louis Moore Bacon, climbed 15% in 2013 through Dec. 19 after falling 0.7% last month through the same period in its Moore Global Investments fund, according to a person familiar with the matter. The Moore Macro Managers fund increased 13% last year and 0.4% in December.

Spokesmen for the funds declined to comment on the returns.

(Bloomberg News)

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