“It’s only when the tide goes out that you learn who’s been swimming naked.” This Buffet-ism was probably the most quoted phrase of the recession, but what happens when things get better? Hedge funds are having a good 2009. According to Chicago-based research firm FBR Capital Markets, hedge funds have gained 9.1% in Q2, their best performance in nine years. EurekaHedge has year-to-date performance of hedge funds at 11.48%. According to HedgeFund.net, the first seven months of the year saw an increase of 11.89%, the best returns in 10 years, driven by strong equity markets.
But this is lacking context. Instead of saying that hedge funds are doing well, lets introduce some other performance figures. Consider the following:
-The FTSE 100 has just hit a 10 month high
-Japan’s Nikkei stock index has also hit a 10 month high
-In Hong Kong, the Hang Seng Index has hit an 11 month high
-The CLSA China Purchasing Managers Index has hit a 12 month high
-Nasdaq has also hit a 2009 high in August
Of course, this is just simplifying statistics. If you look from 02 January 2009 to 07 August 2009, you will see that the FTSE 100 has risen from 4,580 to 4,732, hardly awe inspiring. In March it hit the low of 3,493, the lowest point in six years. According to EurekaHedge, hedge funds were up 1.52% ytd in March. You pay for consistent returns, say hedge fund managers, not the wild fluctuations of equity markets.
Hedge funds have defiantly been consistent, according to this graph, hedge funds are also hitting 10 month highs. Who knows how much of this is due to wise investment decisions, or just getting huge leverage from the TALF? And in truth, everyone can say their doing well, from stockbrokers to hedge fund managers, just by telling investors that thanks to some clever anticipation of global macro performance (leaving the money where you left it), there is a 10 month high on investments.
But all that matters is whether you can pay the rent, or the down payment on your third home. Despite murmurs about performance fees, most investors are still willing to pay top dollar in order to invest in hedge funds. Speaking to one member of the hedge fund industry today, this is because they are lazy. This laziness is something of a hidden secret in the institutional investor industry, he said. In other words, as long as everyone gets their cut, nobody really cares what happens. So lets just enjoy the 10 month highs. Isnt that called a return to normal?