By Svea Herbst-Bayliss
BOSTON, Jan 20 (Reuters) - For some of the hedge fund
industry's titans, including Nelson Peltz and William Ackman,
2016 is starting with heavy losses as big bets on General
Electric GE.N , Valeant VRX.TO , and Mondelez MDLZ.O have
been battered by the market's abrupt drop.
But as a group, hedge funds have navigated the sharp
sell-off relatively smoothly, finally boasting better
performance than the equity markets they have trailed for the
last years.
With the Standard & Poor's 500 index tumbling another 3
percent on Wednesday to push the stock market benchmark down 10
percent for the year-to-date, most investors are feeling pain.
Peltz's Trian Fund Management lost nearly 10 percent in the
first two weeks of 2016 while Ackman's Pershing Square (N:SQ) Holdings,
coming off a 20 percent loss in 2015, tumbled 11.4 percent
through January 12, investors familiar with the numbers said.
More broadly though, hedge funds, which oversee $2.9
trillion in assets for pension funds, governments, and wealthy
private investors, have lost only 2.5 percent, Hedge Fund
Research data show, besting the benchmark stock indices' double
digit losses.
The outperformance from hedge funds may be acting as a
ballast for the market overall, as those managers seek
opportunities in falling shares rather than fleeing, according
to some strategists.
"This is going to be a more volatile period of time and
there will be excessive swings in the market," said Charles
Krusen whose Krusen Capital allocates to hedge funds, but "that
will also provide opportunities especially for hedge funds that
can act as a buffer when the markets go down," he added.
Goldman Sachs (N:GS) analysts said global hedge funds lost less
than 1 percent last week when the Dow Jones Industrials Index
tumbled into correction territory, hurt by falling energy
prices, China's currency devaluation and fears of weaker global
economic growth.
This year's best performing hedge fund, according to
industry tracker HSBC, is the Horseman Global fund which is up
10.49 percent through Jan. 13 after having gained 20.4 percent
last year.
Early winners this year also include Millennium Management,
the $34 billion fund run by Israel Englander which ended 2015
with a 12.7 percent gain. Kenneth Griffin's $25 billion Citadel,
which gained 14.3 percent last year, is up again, as is Jacob
Gottlieb's $8 billion Visium Asset Management, said people who
have seen their performance numbers.
Even Lee Ainslie's stock-oriented Maverick Capital, which
gained 16 percent last year, was down only 0.35 percent early in
the month, sidestepping the dramatic sell off so far. Similarly
BlueMountain's Long Short Equity Fund LP slipped only 0.37
percent this year after ending 2015 up 2.79 percent.
Analysts at Credit Suisse's prime services division said
hedge funds' relatively low exposure to stocks, which they say
is near a two-year low, plus smart sector bets, helped even
stock-focused fund managers absorb January's equity rout, with
estimated losses of only 1.2 percent to 1.6 percent through the
end of last week.
Hedge funds have lost less money in bets on financial
stocks, industrial stocks, and consumer discretionary stocks,
Credit Suisse (VX:CSGN) found. Since the early part of the month, hedge
funds have seen their long bets underperform a bit, but short
positions have outperformed, the firm said.
For some, tumbling markets are putting their favorite names
on sale, fund managers said.
"The market is having a temper tantrum, nothing more, so I
view this turmoil as a buying opportunity," said Whitney Tilson,
who runs hedge fund Kase Capital. She noted, however, that
prices are still not as cheap as they were in 2008 or 2011.
Indeed, some managers are saying that they are trading in
and out more actively these days as they are having a tough time
getting the stocks at the prices they want.
No matter how small the losses are this year, managers are
acknowledging the tough environment and their investors are
keeping a close eye on movements, urging managers to make sure
they are well-hedged. David Einhorn, whose Greenlight Capital is
widely watched, reassured investors he is concentrating on
better returns in 2016 after losing 20 percent last year.
Investors who allocate money to hedge funds on behalf of
wealthy clients have said they could make more changes by
terminating some managers in the months ahead.
Last year, they pulled $1.5 billion out of hedge funds in
the fourth quarter, marking the first time the industry saw net
redemptions since the fourth quarter of 2011, Hedge Fund
Research data show.
But for now, they see little room to exit hedge funds
altogether.
"Seven years post Lehman, investors may suffer from the
seven-year itch to stray from their investment discipline.
However, the fact that there is no other obvious alternative to
put your money may inadvertently protect some investors from
themselves," said Putri Pascualy, who invests in credit-oriented
hedge funds at investment firm PAAMCO.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Asset Performance in 2016 http://link.reuters.com/syf98v
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(with additional reporting by Lawrence Delevingne in New York;
Editing by Alan Crosby)