The average hedge fund returned 1.08% last month, lagging behind the
for the year, but right on pace for an annual gain that mirrors the lifetime average of the
Credit Suisse First Boston/Tremont Hedge Fund Index
"We're kind of right where we're supposed to be," said Robert Schulman, chief executive of hedge fund and advisory firm Tremont Capital Management, which jointly runs the index of 420 major hedge funds. The index has an average return of 13.23% for the year to date, compared to the S&P 500's first 11 months' return of 22.27%. The CSFB/Tremont index has an average annual return of 14.44% since its 1994 start.
Schulman said typical fund of hedge fund returns come from managers who diversify the strategies of their underlying funds, so that the results of the strongest and weakest performers cancel each other out and dampen volatility.Among the 10 principal hedge fund strategies tracked by the index, long-short equity funds had a strong month, but are seeing average year-to-date returns of only 14.53%, which Schulman said was a disappointment.
"That's largely because of the fact that hedge fund managers have not fully embraced the rally," he said.
Strategies with stronger results for the year to date include emerging markets, up 1.17% for November and 24.33% for the last 11 months, and distressed securities investments, up 1.21% in November and 22.99% for the year to date.
Steve Hope, a portfolio manager and senior emerging market analyst with California hedge fund manager Dalton Investments, said both sovereign debt and corporate debt were benefiting from increased global liquidity.
"If the market is willing to allow a country to renegotiate its debt, it doesn't have a debt problem," he said. "That's something that can sort of turn on a dime, but as long as it is supported by the market, it can be justified." That appetite for high-yield debt has made spread products attractive to hedge fund investors, he said.
"It's the reach for yield," he said. "Every investor in the fixed income markets has been looking for more juice, and traditional products just don't offer it."
The average short-bias hedge fund continued to lose money regardless of how investors embraced the market rally -- the average fund in that category lost 1.89% for the month and 29.8% for the year to date.
The index dropped three funds from its ranks, including the Clinton Arbitrage Portfolio, which closed in October. Irvine Capital Partners and Haidar Jupiter -- Short Equity Class -- both stopped reporting returns and were removed from the index.