Hedge funds suffer worst first half in nearly two decades

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The Independent Online

Hedge funds suffered their worst start to the year for almost two decades in 2008, although there was some good news as Man Group, the giant UK alternative asset manager, posted solid results for the last quarter.

As the markets have weakened, hedge fund performance has suffered more than in the wake of the dot.com bust, as managers have had to write down billions or face closure. Peloton Partners, set up by Ron Beller and Geoff Grant, and Sailfish Capital have closed, while the private equity giant Carlyle ended its hedge fund business, and Citigroup in effect shut Old Lane, the manager it bought less than a year before.

Hedge Fund Research, a US analysis group, said the industry index it compiles was the worst in the first six months of the year since it began tracking in 1990.

The group found that on average, hedge funds declined 0.75 per cent this year, only the second time in 18 years the industry performance has fallen into negative territory. The first, in 2002, came in the fall out of the bursting of the technology bubble.

This compares with the first six months of 2007, when the industry advanced 7.45 per cent. The highest recorded half year was in 1992, when global hedge funds were up 16.7 per cent.

Yet John Godden, the managing partner of Alternative Investment Solutions, a hedge fund advisory, was buoyant about the figures. "To be only 75 basis points down in a year where everything else is off over 10 per cent is just awesome. Most investors would be happy with that, and we're still seeing huge inflows into hedge funds."

He added that HFR's numbers were too US-centric, which tended to skew the figures, as US managers hold more equities, causing their performance to fall with the market.

The largest listed hedge fund group in the world, Man Group has started its financial year well, boosting its assets by $5bn (£2.53bn) in the end of March, to $79.5bn at the end of last month. The results prompted a 3 per cent rise in shares with analysts backing it as one of the only secure asset management investments on the London Stock Exchange.

Jason Streets, an analyst at Evolution Securities said: "Man demonstrated the strength of its business model when it reported that assets under management were up 6.6 per cent on the quarter compared with falls elsewhere in the sector." He added: "It remains the safest bet in a grim sector in a grim market."

At the group's annual meeting today, Man's chairman Jon Aisbitt said the demand for its products had remained strong from private investors and institutions.