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This article was authored by José Galeano, CIO at Geneva-based FoHFs house 3A (www.3-a.ch).
Financial events in the past few months have favoured the dissemination of numerous false ideas regarding hedge funds, which are often singled out as ideal culprits in the current crisis. Yet these ideas are a far cry from the truth and it appears that hedge funds, vilified though they have been by the media and public alike, have played their shock-absorbing role rather well and were the early indicators of the current crisis rather than its cause. In this perspective, this article aims to revisit a few myths.
1. Hedge fund performance has been disastrous
2008 will go down in history as the worst year in alternative management. Yet in comparison with equities, hedge funds actually fared rather well. Around mid-year, they even met their double objective of capital preservation (absolute objective) and market outperformance (relative objective). Thus, at 30 June 2008, the HFRI Global Hedge Fund Index had only shed 1% since the beginning of the year, whereas the MSCI World Equities Index had already lost -12%. With a correction of -22% at November 24th, hedge funds have obviously largely missed their capital-preservation target, yet their losses are significantly lower than those of equity markets, which were down -46% at the same date.
In any event, judging a management style by the returns generated over five...................... To view our full article Click here
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