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Hero or zero? Hedge funds post wildly different results as markets swing violently amid coronavirus pandemic
- Hedge-fund index drops more in March than during October 2008
- Investors pull US$1.7 billion out of hedge funds in January and February
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The US$2 trillion hedge-fund industry is facing a triple whammy of margin calls, redemptions and whipsaw prices in markets, as it battles to prove its worth in a financial crisis.
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Investors pulled US$1.7 billion out of the asset class in the first two months of the year, according to database provider Eurekahedge. If that was not enough, governments are increasingly banning short selling, which drastically limits hedge funds’ ability to profit from falling markets.
“March will be a true test of managers’ skills. You can go from hero to zero in a day,” said Ed Rogers, head of Tokyo-based Rogers Investment Advisors, which helps pension funds and other big-money managers put cash in hedge funds.
Hedge-fund managers are under pressure to prove that they can provide uncorrelated performance during a market crash, something that the asset class failed to do during the global financial crisis of 2007 to 2008.
A global index of hedge-fund managers’ performance compiled by data provider HFR had dropped 110.01 points to 1,169.07 on March 23 from 1,279.08 on February 28, a bigger fall in monthly index value than in October 2008, when the index lost 109.86 points to 1,065.50.
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