1. Stockpickers Aren’t Picking Winners Anymore
- According to data compiled by Bloomberg, long-short equity hedge funds are down 15% this year with Chase Coleman’s Tiger Global in the worst shape among large players, losing almost 52%.
- Investors took out a total of US$25 billion from long-short equity funds through August, the most for any hedge fund style this year, according to fund data tracker EVestment.
The value proposition is elegant in its simplicity, instead of just making one-way bets on equities, a long-short strategy presumably provides investors with the best of both worlds, especially when markets turn south.
But this year, the traditional strategy of mixing long and short equity bets hasn’t provided the bear market buffer that investors may have hoped for.
According to data compiled by Bloomberg, long-short equity hedge funds are down 15% this year with Chase Coleman’s Tiger Global in the worst shape among large players, losing almost 52%.
More than half of long-short managers reporting performance numbers to Bloomberg as of September 22 lost 10% or more this year, and 80% of them are down despite years of stellar returns.
Discouraged investors are pulling billions of dollars from long-short equity funds as global equities have lost around a quarter of their value in dollar terms this year alone, against a backdrop of central bank tightening.
Investors took out a total of US$25 billion from long-short equity funds through August, the most for any hedge fund style this year, according to fund data tracker EVestment.
While long-short funds still dominate the US$4 trillion hedge fund industry, with about US$683 billion in assets, they’re close to being overtaken by so-called multi-strategy funds, which invest across multiple asset classes and are often run by teams of less famous, but more replaceable managers.
The favorite stocks of hedge funds are down about 31% this year, and the ones they’re shorting have unfortunately only declined 20% meaning that long-short strategies are losing more on the stocks they thought would go up than they’re making back on the ones they thought would go down.
About 140 new long-short equity hedge funds have started this year and Preqin data shows that while this may seem like growth, it compares with an average of more than 550 annually in the previous 10 years.
Some analysts say that a reset in the industry may be coming, leaving only the strongest players standing.
Long-short equity strategies have struggled against a backdrop of unprecedented monetary policy tightening and interest rate hikes, with early winners in tech shedding far more than other companies that are obvious short targets.
Volatility in commodity prices and the risks of a global recession have also meant that there are no obvious winners or losers which long-short strategies rely heavily on.