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, Especially Paulson's, Fail Investors This Year

(Updated to add context on Paulson.)

BOSTON ( TheStreet) -- The average hedge fund manager, who charges a 2% annual management fee and keeps 20% of any investment gains, is struggling to keep up with an idiot box known as an index mutual fund.

Hedge funds, on average, lost 2.3% of their value in August, bringing their performance this year to dead even. The S&P 500 Index, the benchmark for U.S. diversified mutual funds that's also a popular index fund and an exchange traded fund, fell 5.4% last month, producing a decline of 1.8% for the year.

And some fund managers, including renowned contrarian John Paulson, would be delighted with those returns, as the third quarter is turning into a hell hole for them.

Paulson's Advantage Plus hedge fund has lost 34% this year, according to an HSBC (HBC) report, hurt by holdings in Bank of America (BAC), Citigroup (C), Hewlett-Packard (HPQ) and, most recently, gold. Paulson became a star manager by going all-in on a bet against the housing market three years ago, earning him a reported $5 billion in one calendar year.

>>View John Paulson's Portfolio

Goldman Sachs (GS), Wall Street's most profitable investment bank, this month told investors it plans to close its Global Alpha hedge fund, the crown jewel of its so-called quantitative trading strategy, because of poor performance.

Only three of 10 hedge fund strategies posted positive performances in August. The most winning strategy this year is global macro, which gained 5.9% this year through August. The biggest loser was the multi-strategy category fund, which lost 6.8%. The performance data comes from the Dow Jones Credit Suisse Hedge Fund Index, which tracks about 9,000 hedge funds with assets of $50 million or more.

Hedge funds performances have been volatile this year, a reflection of the world's economic uncertainties. For example, the Dow Jones Credit Suisse Hedge Fund Index gained 0.7% in July, with six of 10 sectors posting positive performances, but that was followed by the August decline. At mid-year, the index had posted a gain of 1.7%.

Other hedge fund managers are reportedly circling Paulson's portfolio like vultures, looking to pick off troubled assets in anticipation that he might have to sell some quickly in order to raise cash to meet redemptions, according to a Wall Street Journal article today.

1 of 3

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
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
AAPL $130.28 0.00%
FB $81.53 0.00%
GOOG $565.06 0.00%
TSLA $218.42 0.00%
YHOO $44.52 0.00%


DOW 18,080.14 +21.45 0.12%
S&P 500 2,117.69 +4.76 0.23%
NASDAQ 5,092.0850 +36.0220 0.71%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs