Though it’s still too early for hedge-fund honchos to celebrate, the top winners so far this year seem to be some of the funds that suffered the worst losses of the excruciating summer of 2007. An inspiring look-see at those who have managed to bounce back after being torn asunder.
Highbridge Capital Management's $1 billion statistical-arbitrage fund, for instance, is up about 10% this year after losses of 14% in 2007, according to investors. Highbridge is the hedge-fund affiliate of J.P. Morgan Chase & Co. Goldman Sachs Group Inc.'s high-profile Global Alpha hedge fund, which took a 37% drubbing last year, is up more than 7%. By comparison, the Standard & Poor's 500-stock index is down about 5.1% so far in 2008.
Meanwhile, at James Simons's Renaissance Technologies Corp., the Medallion fund, which had its worst three-day period in August -- though it quickly rebounded -- already has returned its investors more than 25% in 2008. That is even after deducting about half of the fund's gains in investor fees.
And Man Group PLC's $3.6 billion AHL Diversified PLC fund, which uses a computer-driven strategy to exploit price trends in futures and foreign-exchange markets, is up about 15% this year. Last July and August, the fund tumbled about 7.5%, though it finished the year up almost 20%.
Last summer, losses by some so-called quantitative funds, which rely on computer models, forced them to do some selling, which in turn put pressure on hedge funds making similar investments. Now, the rebounds could signal that the managers may be making headway as they tweak the computer-driven models that had let them down.
A more favorable markets climate has helped, too.
"There's been a return to more normal markets," says David Bailin, head of Bank of America Corp.'s alternative-investment group, which picks funds for wealthy investors. As a result, he says, funds are making money again by buying undervalued shares and debt, while betting against overpriced investments. "Also, with more volatility, you have more profit opportunities for systematic, model-driven traders."
This year's gains also could mean some firms that suffered last year had become too big, and only after losing money and returning cash to investors are they at sizes that allow them to excel.
To be sure, some firms that had challenges last year are seeing mixed results in 2008. AQR Capital Management's global-trading strategy is down more than 10%, though other strategies are doing better, and AQR's stock-selection funds are up as much as 8%.