Monday, November 10, 2008

What Crisis? Some Hedge Funds Gain - by Louise Story (excerpts)

There is an article in Monday's New York Times about hedge funds that have increased their returns this year. (Excerpts are in italics, boldface mine).

Bernard V. Drury is a rarity on Wall Street: a hedge fund manager who is making money rather than losing it.

Aaron Houston for The New York Times.

A hedge fund operated by Bernard V. Drury, of Drury Capital, has risen 60 percent since Jan. 1.

While most hedge funds are sinking into red this year and unsettling the markets in the process, a handful of them are posting spectacular gains. Mr. Drury’s fund, for instance, is up 60 percent since Jan. 1.

How did he do it? Mr. Drury, a former grain trader, is not giving away his secrets. He relies on proprietary computer models to chart tides in the markets and to ride the prevailing currents...

This secretiveness could indicate the success of different strategies:
1) One would have been to sell early on in the year (yes, well) while ahead, and buy T-bills.
2) Or why not short stocks? (Mm-hmm). Some short funds are up substantially for the year (please see the chart below from, but it is not the best permanent strategy for buying stocks if a goal of investing is to help companies raise cash to increase their business. While these funds might be up because of savvy shorting, they could get caught on a strong upwind - just as most were caught on the downdraft.

...another big wave of withdrawals in mid-November could further unsettle the markets....Hedge fund returns, on average, are down 20 percent. But one in every 50 funds is up more than 30 percent — an astonishing performance, considering the broad stock market is down even more than that...

Winners include trend-followers like Mr. Drury; market-spanning macro funds, which dart in and out of an array of markets and bet on everything from Apple Inc. to zinc; and niche players that are buying insurance policies or making loans to small companies.

Some of this year’s stars are familiar names on Wall Street. For instance, a fund managed by John Paulson, who reportedly was paid $3.7 billion in 2007 after betting against the subprime mortgage market, has gained nearly 30 percent this year in his largest fund, investors say.

Betting against the subprime mortgage market helped, of course. (A lot!)

These traders sit at desks and their computers watching numbers go up and down. That is what they do all day. That is most all they do at the office, too. That's how they get the experience to trade on hunches.

...A showing that would have been considered dismal only a year ago is now viewed as a standout success. Traders even joke that down 10 percent is the new break-even. Actually making money is all the more rare.

“This year, anything north of 10 percent is spectacular,” said Pierre Villeneuve, managing director of the Mapleridge Capital Corporation, a $750 million hedge fund in Canada that is up 18 percent.

Other funds with big winnings include R. G. Niederhoffer Capital Management; Conquest Capital Group; MKP Capital Management; the Tulip Trend Fund, run by Progressive Capital; and funds run by John W. Henry & Company....

...Exis Capital, a $150 million fund that trades stocks, is up 9 percent this year, even after the fund’s manager took their 50 percent fee, according to investors....

...In commodities trading, Touradji Capital Management is up 11 percent

...Trafalgar, a hedge fund in London, manages 10 funds. Three are down, but two — a volatility fund, and “special situations” fund — are up more than 20 percent, according to an investor. Trafalgar declined to say what special situations it had pounced on. Volatility funds, a category that is broadly doing well, focus on trading options and try to profit when the markets swing wildly as they have lately....

(Marek) Fludzinski, the chief executive of Thales Fund Management, was among the computer-loving quantitative fund managers who suffered in 2007, when his fund lost 8 percent. Investors immediately began asking for their money back, so Mr. Fludzinski shut the $1.6 billion fund and started anew. Now his computer-driven fund, created in May, has grown to $350 million from $80 million in assets and is up 14 percent.

...Marc H. Malek, a former UBS trader who manages $611 million, is up 44 percent in his macro fund....

...Roy Niederhoffer, founder of R. G. Niederhoffer Capital Management, whose more famous brother, Victor, made and then lost a fortune trading, is up more than 50 percent.

It wouldn't be prudent not to end with a reminder that only one in three hedge funds are up this year. Most hedge funds are off, with history-making lows.

...This year, some 70 percent of hedge funds had lost money from Jan. 1 through the end of September...
(but what about October, when most of the damage happened?)

"One good year can vault a small player to the big leagues."
Hope springs eternal.

Sounds more hopeful than Nouriel Roubini on CNBC today who said that the markets will still fall another 20-30% and that America will forever into the future be beholden to China and India. He also sees unemployment rising dramatically ahead.

Tim Knight on his blog, wrote yesterday that this downturn is unlike anything in the charts he has seen, the Great Depression, 1987, 2001, etc. He says that there just isn't anything in his charts that compares.

Rhonda Schaffler on Bloomberg TV this morning said that this is different than other downturns because it involves all of the markets, the stock, bond, commodity markets and housing and all are falling in price.

There just isn't anywhere to hide, is what I keep hearing. Super gloom all around and hardly anyone is buying stocks yet!

Maybe the Green initiative with emphasis on fossil fuels and alternative energy will lift us out of this miry economic bog, or so said James Galbraith, an economist at the U of Texas, and son of Canadian Nobel prize winning economist, J.K. Galbraith, on NPR this morning. Sustainability! We should think Green.

Jim Cramer mentioned PPG, a glassmaker, on CNBC today as a play on this theme and China. (Must be hard to do his show when his stock picks keep falling! But whatever, who knows? He makes a good case.)

Here is a chart from with top open mutual funds year-to-date. All are short funds:

















No comments:

Post a Comment