(February-2003) Hedge funds weather 2002 storm

Despite tough market conditions and a battering from the media, some hedge fund managers have comfortably outshone traditional asset classes in 2002.

Financial Risk Management (FRM) senior vice president Derek Goodyer says: “The year 2002 was probably the most difficult year for hedge funds since 1998 when we had the Russian debt default and the subsequent failure of Long Term Capital Management. It has been another traumatic year and a choppy period for hedge funds generally.”

According to the Bank of Bermuda, Australian long-short equity funds offered the strongest regional performance by all hedge funds, with funds as a whole up 5.08 per cent for the year in local currency terms.

Hedge funds contacted by Super Review support this assertion, with long-short equity managers emerging as the pick of the bunch, but event driven managers and those focusing on absolute returns found the going a little tougher.

Vertex Capital’s long-short equity Relative Value Fund, which has over $10 million in assets, was up 2.76 per cent in December net of fees, and up 29.7 per cent for the whole year.

Fellow long-short equity manager K2 Asset Management, returned 14.5 and 10.77 per cent respectively in its Asian and Australian funds in 2002, while Blue Sky Capital, which invests in Japanese equities in a long-short capacity, also had a good year returning 16.17 per cent net of fees.

Relative value fixed-interest manager Basis Capital returned 1.15 per cent for December in its Aust-Rim Opportunity Fund, and 1.03 per cent in its Pac-Rim Opportunity Fund, pushing the funds out to 13.05 and 12.33 per cent for the year respectively.

Event driven Austral Capital’s Equity Underwriting Fund returned 0.40 per cent in December and 7.0 per cent for the year. “It’s a solid result in an environment of fairly low level corporate activity in terms of placements, IPOs and mergers,” says managing director Stephen Rabin.

Colonial First State’s hedge funds experienced mixed fortunes over the year: CFS Wholesale Long Short Share Strategies Fund was up by 0.35 per cent, CFS Wholesale Relative Value Share Strategies Fund by 7.44 per cent, CFS Wholesale Fixed Interest Strategies Fund by 10.04 per cent, CFS Wholesale Tactical Strategies Fund by 13.01 per cent and CFS Wholesale Global Diversified Strategies Fund by 6.89 per cent.