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

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 GAINS

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)