Hedge fund retreat: Cautious managers take the money and run

Hedge funds lagged the equity markets in July, as many of these alternative asset class managers now appear to be proceeding with caution after several consecutive months of strong gains. According to a new report from the New York-based Hennessee Group LLC, the Hennessee Hedge Fund Index gained 3.4% in July — compared with a 7.4% July gain by the Standard & Poor’s 500 Index. This Hennessee benchmark was up 15.5% over the first seven months of the year, however, while the S&P 500 was up 9.3% year-to-date through July 31. “Managers opened up their net exposures to participate [in the stock market rally], but also benefited from a better-than-expected earnings season,” said managing principal Lee Hennessee. “However, managers remain vigilant, knowing that the markets could crack — and crack quickly.” A preliminary report for July released today by Credit Suisse Tremont Index LLC also showed signs that the hedge fund industry is becoming more guarded. While there are still ample opportunities in the hedge fund arena, market momentum has slowed, making many hedge fund managers more cautious, the report stated. With 62% its database reporting, the Credit Suisse Tremont Index has estimated that hedge funds gained 2.4% in July.