The 2007 Credit Suisse Index shows that hedge funds have outperformed many major global equity indices for the year while maintaining considerably less volatility.
According to Oliver Schupp, President of the Credit Suisse Tremont Index, LLC, the Index finished the period with estimated annual returns of 12.1% for 2007 year to date through November 30.
“We are pleased to present a research piece analyzing the performance of the Credit Suisse/Tremont Hedge Fund Index for 2007,” said Mr. Schupp. “Hedge funds experienced a challenging year due to certain market events but finished the year through November 30 by outperforming many major global equity indices while maintaining considerably less volatility.”
2007 was characterized by unusually high levels of volatility that impacted hedge fund strategies and financial markets throughout the year. A major sell-off in China in late February sparked fears of an Asian crisis reminiscent of 1997. Unexpected liquidation of several high profile hedge funds, as well as November’s equity sell-off in markets worldwide. Nevertheless, hedge fund strategies performed well and the Broad Index returned 2.0% in the fourth quarter with all 10 sectors in positive territory through November 30th.
The asset management business of Credit Suisse is comprised of a number of legal entities around the world that are subject to distinct regulatory requirements; certain asset management products and services may not be available in all jurisdictions or to all client types.
14 Dec 2007
Hedge Funds Sector Positioned To Recover Quickly, F&C Partner Speculates
Commenting on the subprime crisis, Francois Barthelemy, partner at hedge fund F&C Partners said, "Hedge funds tend to suffer in very volatile environments but well-managed portfolios often recover quickly, once the market has come back to some sort of rational pricing of assets."
Despite the recent volatility that led many to describe November as the 'bloodiest' month for hedge funds, the sector is well positioned to benefit from the current turmoil.
Barthelemy explained, "The real question that people are struggling with is that there are a number of signs indicating that we might be moving into recession territory. We have had three great years where the way to make money was about growth and it seems we are now moving into a very different environment."
He belives, "the solution requires the raising of fresh capital and the selling of impaired assets to investors who will have the ability to work them through bankruptcies or restructuring," he said. "Only hedge funds have the legal and investment expertise to buy that type of assets and they are likely to do really well as a result of it."
Between December 2000 and December 2004, the Credit Suisse Tremont Distressed Hedge Fund Index was up +72%, while the MSCI World Index was down -2%. "We expect the next few years will see a repeat of this scenario."
Outside distressed assets, there are also attractive opportunities in a number of traditional investment sectors but not on a standalone basis. "While alpha is now easier to find, the beta of the market may kill you. This means it is the best of times for hedged strategies that aim to take most of the beta out of the return," he said.
Barthelemy, whose team is responsible for the management of the F&C Balanced Alpha Fund of Hedge Funds and the F&C Select Alpha Fund of Hedge Funds, concluded, "There is not doubt the world is very volatile and I don't think that buying just equity will work in the next few years. Volatility is not going to go away for a while and you will need a strategy that can cope with that. For me that means hedge funds."
Despite the recent volatility that led many to describe November as the 'bloodiest' month for hedge funds, the sector is well positioned to benefit from the current turmoil.
Barthelemy explained, "The real question that people are struggling with is that there are a number of signs indicating that we might be moving into recession territory. We have had three great years where the way to make money was about growth and it seems we are now moving into a very different environment."
He belives, "the solution requires the raising of fresh capital and the selling of impaired assets to investors who will have the ability to work them through bankruptcies or restructuring," he said. "Only hedge funds have the legal and investment expertise to buy that type of assets and they are likely to do really well as a result of it."
Between December 2000 and December 2004, the Credit Suisse Tremont Distressed Hedge Fund Index was up +72%, while the MSCI World Index was down -2%. "We expect the next few years will see a repeat of this scenario."
Outside distressed assets, there are also attractive opportunities in a number of traditional investment sectors but not on a standalone basis. "While alpha is now easier to find, the beta of the market may kill you. This means it is the best of times for hedged strategies that aim to take most of the beta out of the return," he said.
Barthelemy, whose team is responsible for the management of the F&C Balanced Alpha Fund of Hedge Funds and the F&C Select Alpha Fund of Hedge Funds, concluded, "There is not doubt the world is very volatile and I don't think that buying just equity will work in the next few years. Volatility is not going to go away for a while and you will need a strategy that can cope with that. For me that means hedge funds."
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