Perry Capital Down 9.3%

Nov 17 2008 | 1:24pm ET

Another big-name hedge fund is taking it on the chin. Perry Capital has told its investors that it lost 6.13% in the third quarter and is down 9.32% for the year through September.

In a letter to investors last month, the $11 billion firm said it was disappointed with its recent performance, particularly since it has been reducing its overall equity exposure and building liquidity for over 12 months in anticipation of a global credit crisis.

"Given our concerns about the macro environment, we entered September with the least amount of directional market exposure we have had in the last few years," it said.  "Our cash balances also increased significantly, rising from 26% at the end of August to 31% by the end of September, one of the highest levels the firm has ever held."

Until the last few days of September, Perry said its performance held up relatively well. However, the massive deleveraging that resulted from the failure of some of the world’s largest financial firms, the unprecedented government intervention in the capital markets, and the forced selling from banks and hedge funds cost the firm "meaningfully."

Specifically, the firm said the credit derivative market effectively froze in September, forcing it to dramatically reduce its short credit default swap exposure. For the past 12 months, Perry has also been reducing its equity long/short allocation and has downsized its European equities portfolio.

"Our focus in Europe will continue to shift away from equities and we anticipate seeing more special situations and distressed opportunities through the remainder of this year and into 2009," it said.

Until this year, Perry said the realized returns on its private equity investments have been "excellent." However, it has recently taken mark downs on many of its side-pocket investments, but anticipates that it is in a prime position to buy numerous assets that will be sold into the market. "We also anticipate a tremendous opportunity in rescue lending, an area where we generated significant profits during the 2002-2003 cycle."


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