Hedge funds set for worst first half since 2011 on turmoil

Industry suffers billions of dollars in withdrawals, with forecast for further shrinkage

The first six months of the year is turning out to be a period hedge fund managers want to forget.

With China’s currency causing global market turmoil in January and the UK vote to quit the European Union doing the same in June, the $2.9 trillion industry is headed for its worst first-half performance since 2011.

“There have been a lot of intrinsic shocks this year, especially after managers got relatively comfortable with betting on rising markets for the last several years,” said Ronan Cosgrave of Pacific Alternative Asset Management, an Irvine, California-based firm that invests client money in hedge funds.

Hedge fund managers, who charge clients hefty fees to see around corners, struggled to navigate markets marked by wide stock swings, a commodity selloff and divergent monetary policies.


The industry has suffered billions of dollars in withdrawals, with a forecast for further shrinkage, and criticism over everything from a talent shortage to crowded trades.

Insider-trading charges against a manager, who committed suicide days after his arrest this month, reminded the industry that it’s still in the sights of US authorities three years after billionaire Steve Cohen’s firm pleaded guilty to securities fraud.

Funds lost 1.8 per cent this year through June 28, according to Hedge Fund Research’s Global Hedge Fund Index, on pace for the worst first-half performance since 2011, when they slid 2.1 per cent. Firms will update investors on their June returns starting Friday.

Bill Ackman is among the losers, extending his slump after a dismal 2015. The publicly traded security of his activist hedge fund dropped 21 per cent through June 21, according to the Pershing Square Holdings website.

Lansdowne Partners, one of Europe’s largest hedge funds, fell about 14 per cent through June 24 in its main pool, while its Developed Markets Strategic Investment Fund declined almost 16 percent, a client update shows.

Managers started on a bad footing as the yuan weakened sharply in January, leading to a 2.8 per cent decline for the industry. Multimanager funds, some of which held similar positions, were hit hard in February as their tight risk controls forced them to sell securities at the same time, further depressing prices.

Some of the most prominent managers were hurt in mid-March by their holdings in Valeant Pharmaceuticals when the stock plunged anew.

Around the same time, manager Crispin Odey called markets a “battlefield”as his portfolio was rising and falling by more than 5 per cent a day. In an April letter to clients, Dan Loeb said the business was in the first stages of a washout after one of the most “catastrophic” performances he’s seen since he started his hedge fund in the 1990s.

Funds including Martin Taylor and Nick Barnes's Nevsky Capital and Barry Wittlin's WCG Management liquidated, while Brevan Howard Asset Management and Tudor Investment were hit with investor withdrawals. ,