Hedge funds faulted for not being short-term enough

Fri Feb 17, 2012 1:11am EST
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By Laurence Fletcher

LONDON (Reuters) - Used to criticism for caring only about short-term profit, hedge funds are now being faulted for a failure to think short-term enough after losing out badly in last year's volatile markets.

A series of bad bets by hedge funds which were not able to keep up with markets roiled by the euro zone debt crisis pushed the industry as a whole down 5.2 percent last year, according to Hedge Fund Research.

The second year of losses in four for an industry used to chasing rapid gains from takeovers and restructurings looked especially bad because the benchmark S&P 500 stock index was flat.

Double-digit gains were the norm in the 1990s for firms that demand high fees for their vaunted acumen.

"Many hedge funds are too focused on the medium term and not enough on price action," said hedge fund manager Philippe Gougenheim, the former head of hedge funds at Swiss fund firm Unigestion, who is now launching his own firm.

"For instance, some commodities funds that did not do well last year were too focused on the fundamentals, even when the short-term macro environment was not very good."

Among those that fared the worst were long-short equity funds, which buy shares they expect to rise and sell short those expected to do worse. They lost 8.3 percent last year. Market neutral funds were down 2.1 percent. Commodity funds tumbled 17.3 percent.

"If you make a good fundamental call but the timing is wrong then it could potentially be a bad investment," said Sal Naro, founder of Coherence Capital Partners. "Asset managers are not paid for making sound credit calls at the wrong time."   Continued...