This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Hedge Funds' Year of Investing Dangerously

BOSTON ( TheStreet) -- Hedge-fund managers, who get rich by skimming off a fifth of their clients' investment gains, are posting larger losses than the average American after their risky bets proved to be the wrong choices during last week's stock-market crash.

This year is turning out to be almost as bad as 2008 for hedge-fund managers, with inflows slowing at a "torrid pace," according to the latest fund flow data from research firm TrimTabs. After raking in more than $67 billion in the first several months of the year, the hedge fund industry pulled in only $1.8 billion in June and July, according to the report.

John Paulson (Paulson & Co.)

Performance, for which investors pay a premium over traditional mutual funds, has been underwhelming this year. The Barclay Hedge Fund Index was up 1.1% through July, trailing a 2.8% rise in the S&P 500. August has so far witnessed a bloodbath for equity prices, with the S&P 500 falling more than 8%, and leverage hedge funds expected to perform as badly, if not worse.

Many comparisons are being drawn between this month's selloff and the market collapse in late 2008. Hedge funds are already seeing an eerie increase in blow-ups. Hedge Fund Research estimated that by the end of the first quarter, 684 funds liquidated in the previous 12 months, resulting in the highest net increase since 2007.

Hedge funds, which tend to take on more risk than mutual fund managers, have seen their strategies undermined by unforeseen circumstances, from the earthquake and tsunami in Japan in March to the growing debt crisis in Europe and the downgrade of U.S. debt by Standard & Poor's Aug. 5. Several media reports have hedge fund manager John Paulson's Advantage Plus Fund down 31% this year as of Wednesday.

"Absent a reversal of fortune, many mangers will not collect performance fees for the fourth straight year," TrimTabs analysts write in the latest flow report. Most hedge funds charge a 2% management fee and take 20% of clients' investment profits. Most mutual funds charge only management fees amounting to less than 1% of assets.

Prior to May and June, hedge funds had not seen two losing months in a row since the financial crisis, notes. "The European debt crisis has likely resulted in lowered exposures to risky assets and losses in May and June were the result of this de-leveraging," the firm notes.

Hedge fund performance will be scrutinized more closely as today is the deadline for managers to report holdings to the Securities and Exchange Commission for the second quarter. Hedge funds that manage more than $100 million are required to disclose their equity holdings, options and convertible debt on a Form 13F filed to the SEC within 45 days of the end of a quarter. These filings can give individual investors a roadmap for where the so-called smart money is flowing.

Although investors will have to wait for the full filings to find out what some of the largest and most prominent hedge fund managers bought and sold during the second quarter, TheStreet has combed through SEC filings and investor letters to get a peek at what the full 13F filings will show. From Paulson and Soros to Ackman and Einhorn, their known moves are detailed on the following pages.
1 of 5

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
FDO $0.00 0.00%
BAC $11.95 0.00%
CLX $127.54 0.00%
MOS $22.91 0.00%
YHOO $27.04 0.00%


Chart of I:DJI
DOW 15,973.84 +313.66 2.00%
S&P 500 1,864.78 +35.70 1.95%
NASDAQ 4,337.5120 +70.6750 1.66%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs