The FOMC's action of cutting rates by 75 bps yesterday probably contributed somewhat to the recovery in the Asian markets today. Most Asian indices, at this time of writing, are trading at +2-3% for the day. What does this mean for hedge funds who are primarily long-biased in these markets? Nothing.
Funds that did not control their delta (or net) exposure to the markets seemed to be hit badly, for some as much at -10% for the month. This damage inflicted to their historical performance will always be frowned upon by some investors, viewed possibly as a lack of downside protection (or the overused 'risk management'). Of course, in these times the Men are separated from the Boys. True 'hedge' funds are still generating performance +1% or more for the month, mostly by their agile action in inverting their long bias exposure on short notice. Good market timing also contributed to the performance of these funds, having known of this inevitable sell-off in the equity markets weeks (if not months) before.
Another interesting behavior noticed is also managers keeping mum about their negative performance in the recent turmoil. The only transparency you get from managers are emails from those who are actually not in the red for the month.
Bottom line- these are interesting times for hedge funds, and certainly great opportunities for managers to justify their juicy management and performance fees. And also good times to study the behavior of managers who got caught on the wrong end of the markets. How much transparency will we get from them now?
felix@oshedge.com