Hedge funds that crowded into same names likely to nurse losses

Fri Aug 28, 2015 1:00am EDT
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By Svea Herbst-Bayliss

BOSTON Aug 28 (Reuters) - Hedge fund managers often promise to find stock ideas off the beaten path but this month many prominent players have been bloodied by doing exactly the opposite; betting on a small handful of popular names that sold off sharply in August.

The carnage of the last week - even with Wednesday's and Thursday's rebound - has been particularly acute for investors who have seen their overweight positions in companies such as social media site Facebook, pharmaceutical company Valeant, internet retailer Netflix, carmaker Tesla Motors and renewable energy company SunEdison get pummeled in the last days.

As a result, people who have money with David Einhorn's Greenlight Capital, Leon Cooperman's Omega Advisors, Chase Coleman's Tiger Global, Philippe Laffont's Coatue and others are bracing for red ink when August data comes out next week. Only a few managers have actually told investors about their losses.

"People will be shocked by how bad the numbers will be," said Peter Rup, chief executive and chief investment officer at Artemis Wealth Advisors, which invests in hedge funds, adding "they will be down 8 percent (for the month) and for some people it may be a lot worse."

The average hedge fund is off almost 2 percent for the year, according to Hedge Fund Research data, while the Standard & Poor's 500 index is down almost 5 percent.

One reason the declines may be so big is that managers have tended to crowd into similar stocks, some lulled by years of rising markets, several investors said.

For example, Omega Advisors, which investors say is off 12 percent this month, was hurt most by SunEdison's 47 percent plunge this month, investors said. The stock fell 14 drop in the last five days alone, even though it came back on Thursday, and also hurt Greenlight Capital and Daniel Loeb's Third Point, investors said.

Earlier in the week, Omega's Steven Einhorn said his firm believed stocks would rebound. The S&P lost more than 11 percent in a six-day run of losses before recovering, gaining 6 percent on Wednesday and Thursday combined.   Continued...