A Hangover For Hedge Funds

For the hedge fund industry, August was just “one of those months."  Often regarded as vehicles exclusively for the rich to get richer, the industry lost a little bit of its luster this month.  According to Hedge Fund Research Inc, not one major hedge fund strategy outperformed the S&P 500 during the month. In theory, hedge funds are supposed to provide steady and consistent returns, so if they underperform during a strong month, it is not necessarily such a bad thing.  However, no one likes to get a statement or letter that says they were only up 1% when the market was up more than twice that.

This morning, the Wall Street Journal ran a story which further illustrated how tough the month of August was.  Goldman Sachs is regarded by most to be the savviest trading house on Wall Street, and for years we have referred to it as Wall Street’s largest hedge fund since such a high percentage of its profits come from its proprietary trading group.  This month, however, one of the company’s largest funds, which manages $10 bln in assets for its most elite clients, fell nearly 10% during the month, equating to a loss of $1 bln.