By Svea Herbst-Bayliss
BOSTON, July 5 Hedge funds have little to brag
about halfway through 2012, with some of the industry's biggest
names reporting only small gains and trailing the benchmark U.S.
stock index by a wide margin.
Paul Tudor Jones' flagship fund is up 1.59 percent through
the third week in June and David Einhorn's biggest portfolio is
up 3.7 percent in the first half, while Daniel Loeb told
investors that his largest fund rose 3.9 percent during the
first six months of 2012, investors in the funds said.
Compared with a year ago when many hedge funds were losing
money, these returns might be something to cheer, especially
since they beat the benchmark HFRX Global Index's 1.22 percent
But they pale measured against the 8 percent rise in the
Standard & Poor's 500 stock index during the first half, with
the $2.1 trillion industry failing to wow at a time that public
pension funds are increasingly turning to hedge funds to shore
The industry's underperformance may again raise questions
whether it makes sense for institutional investors to pay hefty
fees to hedge funds when they can earn better returns from
low-cost index funds. Unlike most other portfolios, hedge funds
take a management fee plus a performance fee that is often 20
percent or more.
EUROPE HURTS AGAIN
Europe's seemingly endless debt crisis is getting much of
the blame for the year's anemic returns, but concerns about U.S.
growth and how China will perform are also making for uncertain
trading conditions, experts said.
With the steady stream of European news making for what
traders are calling excessive volatility in the short term,
hedge fund managers betting on big events are having a tougher
time, experts added.
"People are over-managing their positions," said Peter Rup,
chief executive and chief investment officer at Artemis Wealth
Advisors, saying that funds moved to short positions only to see
those turn against them when markets rebounded after having
So-called global macro funds that bet on big interest rate
and currency movements were the worst performers during the
first half, dipping into the red for the year thanks to currency
trading losses in late June.
Brevan Howard's flagship fund was off 3 percent halfway
through June, an investor in the fund said. Robert Gibbins'
Autonomy Capital has delivered strong gains, however, climbing
3.4 percent in June and 8 percent for the year, an investor in
the fund said.
There were other bright spots as well, with some managers
who specialize in selecting stocks making savvy picks and some
managers specializing in credit also performing well.
Leon Cooperman's Omega Advisors Inc was up 10 percent in the
first half, benefiting from its long-time investment in student
lender Sallie Mae, whose shares have rebounded recently.
Marcato Capital Management, founded by Mick McGuire after he
left Bill Ackman's Pershing Square Capital Management, jumped
12.7 percent in the first half.
Andor Capital Management, run by technology investor Dan
Benton, who recently came out of retirement, is up 6 percent,
while Steven Cohen's SAC Capital Advisors, one of the industry's
most closely watched funds, was up 5.2 percent in the first
Boaz Weinstein's Saba Capital, which took the other side of
some of the trades that resulted in huge losses for JPMorgan
Chase & Co was up 2.3 percent through the third week of
June. Blue Mountain, another fund that also made money on the
other side of JPMorgan's failed trades, was up 9.54 percent
through the third week of June, a person familiar with the
Some global fixed income strategies also worked for
managers, with Brian Taylor's Pine River Capital Management
attracting positive attention. Its Pine River Fixed Income fund,
managed by Steve Kuhn, is up 13.76 percent this year while its
Pine River fund, managed by Aaron Yeary, is up 9 percent.
And Kenneth Griffin, another one of the industry's biggest
players, again put up strong numbers when Citadel's main funds
notched a 9 percent increase in the first half.
WINNERS NO MORE
There are losers as well, including the two men who made the
most betting against the subprime mortgage market. Philip
Falcone, now being sued by financial regulators and often slow
in releasing his numbers, told investors his Harbinger II fund
was off 33 percent during the first five months of 2012. John
Paulson's Advantage Plus fund was off 10 percent through the
first five months of the year.