Hedge Fund Giant Man: It's A Good Time To Be In Managed Futures, Macro

Sep 13 2010 | 9:13am ET

Hedge fund managers dialed back risk in the face of bearish economic fundamentals in August, according to Man, one of the world's largest listed hedge fund providers. The flight to safety in assets such as government bonds led to a lackluster month’s performance for most hedge funds, even though they are still handily beating world equities this year.

Managers’ moves to reduce risk in August were typical of a volatile 2010. In July, managers’ embraced risk as optimism grew in world markets following more positive economic data. May and June were marked by market turmoil and investor indecision. As a result, managers reduced risk and hedge funds generally struggled.

“Risk-on, risk-off is creating a roller coaster ride for hedge funds," said Michelle McCloskey, head of research at Man’s multi manager business. "This month’s flat returns are slightly misleading. Hedge fund returns are widely dispersed. There are some big winners as well as big losers.”

Managed futures firms were the stars of the hedge fund universe last month, as they benefitted from the strong rally in U.S. Treasuries and other government bonds. Global macro and relative value built on July’s success. Global macro traders profited from currency, fixed income and commodity trading, while relative value traders benefitted from credit and derivative arbitrage strategies.

According to Man, equity hedged managers lost money in August but they succeeded in limiting downside compared to broader markets. At the same time, event-driven hedge funds lost money as a collapse in post-reorganization equities impacted distressed positions. And special situations managers struggled to eke out returns despite a busy month for M&A.

“At times like these, when equity related styles are struggling, it is especially helpful to have sizeable allocations to managed futures and global macro," said McCloskey. "Managed futures has not always been well regarded by institutions but managed futures managers have proven again this year that they can provide great insurance against falling equities.”

Man’s funds under management as of June 30 were $38.5 billion.

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