Hedge Funds Disappoint Overall

By on August 19, 2011

The Economist has exposed the hedge fund complex as a major disappointment for their investors. Even with the market down they’ve been struggling to match the index averages during this miserable period.

A recent standout to the downside has been John Paulson, hailed a genius for profiting immensely from the real estate downturn in 2008. As of August 5th, his Advantage Plus fund was down 31% for the year and its probably gotten worse since then. Paulson was reportedly a big holder of Hewlett Packard (HPQ), an extremely poor performer year-to-date and a huge loser today.

The Economist speculates on the fate of the underperformers:

August is on track to be one of hedge funds’ worst months ever. The effects will be felt most by some of the weakest funds, many of which need a quarter or two of good performance to restore the morale of their investors and traders. Should they continue to underwhelm in the coming months, investors are likely to withdraw their money. That could force some smaller funds to be wound down.

Source: The Economist

Funds shutting down are removed from the performance numbers of the hedge fund complex resulting in survivorship bias. The organization Hedge Fund Research (HFR) claims efforts are made to reduce all biases in their indexes, but Burton Malkiel is amongst those who consider the performance data to be overstated to a significant degree.

Source: FT.com

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