September turned out to be the worst month in decade for the hedge funds. A wave of declines swallowed up the world markets. Hennessee Group LLC analyses the situation.
According to Hennessee Group LLC, an adviser to hedge fund investors, the Hennessee Hedge Fund Index declined 6.24% in September (-10.28% YTD), while the S&P 500 declined -9.08% (-20.57% YTD), the Dow Jones Industrial Average declined -5.78% (-18.20% YTD), and the NASDAQ Composite Index declined -12.0% (-21.51% YTD). The Lehman Aggregate Bond Index declined -1.34% (+0.64% YTD).
The losses of the last two weeks were caused by governments restriction on short selling which in turn led to liquidity disappearance. The downturn forced managers to reduce net and gross exposure pushing lower long positions by de-leveraging/liquidity concerns.
The ban on short selling caused significant losses across most strategies and required funds to alter their trading models, says Charles Gradante, Co-Founder, Hennessee Group.
Short selling restrictions handicapped managers ability to put on trades which led to decline of The Hennessee Arbitrage/Event Driven Index 6.38% in September. The Hennessee International Index decline of 8.00% (-15.76% YTD) hurt international long/short equity funds and brought de-leveraging to global markets.
Many macro managers have put on a ‘global recession trade, says Gradante. They are long duration bonds while short equities and credit.