We have been covering hedge funds for the last eight years and noticed that financial journalists love to bash hedge funds. When the bull market is raging, they say hedge funds suck because they underperform the market. Now that there is a noticeable market correction going on and hedge funds are outperforming the market, guess what they are saying? Here is an excerpt from an FT article where they use recent weakness in Facebook Inc (FB), Alphabet Inc (GOOG), Amazon.com Inc (AMZN), and Alibaba Group Holding Limited (BABA) shares to bash hedge funds:
“Credit Suisse estimates that most long-short funds have lost between 5.5 per cent to 7.5 per cent this month, which would be the worst stretch since the financial crisis. “It’s been a messy month,” said Troy Gayeski, senior portfolio manager at SkyBridge, a fund-of-funds. “We’ve seen the crowded positions in the ‘hedge fund hotels’ get liquidated.” “Hedge fund hotels” are an industry nickname for companies that are particularly popular with hedge fund investors. This year, most of the hotels have been in the technology sector, such as Facebook, Alphabet, Amazon and Alibaba — all of which are down at least 10 per cent just this month. Long-short funds manage about $800bn, according to eVestment, making them the biggest part of the global hedge fund industry. The size of the long-short universe, coupled with the leverage that many players use to juice their returns, means that their woes have probably led to some forced liquidation of positions, fuelling the recent turmoil, analysts say.”
Basically, FT is claiming that equity hedge funds lost anywhere from 5.5% to 7.5% because they use leverage, invest in the same crowded stocks like Facebook, Alphabet Inc, Amazon, and Alibaba Group Holding Limited, and dump their positions all at the same time. If they had contacted us we would have told them whether their assertion is really what is happening in the markets right now.
