Some hedge fund managers are experiencing their worst losses since the financial crisis of 2008, even though the economy is performing well now.
Hedge fund managers David Einhorn and Michael Novogratz have seen losses of about 17% so far this year. The fund of fellow manager Bill Ackman declined in value by 13%. The firms of Sean Fahey and Michael Platt have lost billions of dollars, as they are now managing less than one-third of what the possessed at their peaks.
There are many reasons why some hedge fund managers are struggling. September was a rough month for Ackman in particular, as six of the most critical stocks to his fund fell by at least 20% during the month. Ackman’s Pershing Square Holdings lost 12.6% of its value last month.
The year has been full of surprises so far, including the unexpected rise of the Swiss franc, the rally of European bonds, and the decline of the Chinese yuan.
Chief research officer at Novus Stan Altshuller wrote, “Hedge funds are reeling from a relentless rout that has all but killed a year’s worth of alpha in a matter of two weeks.”
Most hedge funds have not performed all that badly, declining by just 3% on average. But clearly some have not been as fortunate.
Greenlight Capital, which is managed by David Einhorn, fell by 3.6% last month. Einhorn stated that current markets are acutely unfavorable to his preferred style of investing. Greenlight Capital lost money in the sectors of energy and technology. The decline of Gold also hurt Einhorn.
Michael Novogratz’s Fortress Investment Group LLC declined by 4.3% through the 25th of last month. This represents the second time in three months that the fund has declined in value.
Stocks have declined 10% since this peak in May earlier this year. The result has been tough for managers of hedge funds that do not rely on short selling.
Managers say that they are able to weather the storm for the time being because they are focused on long-term investing. However, this hasn’t stopped some funds from shutting down, such as Cargill Inc.’s Black River Asset Management and Carlyle Group LP’s Vermillion Asset Management.
As for now, the lackluster performance could continue for hedge fund managers in the near future, as they continue to rely on declining stocks. However, one would expect the hedge fund market to stabilize once stocks bounce back.