Hedge Fund Reader : Analysts see cyclical trend in Hedge funds

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July 27, 2005

Analysts see cyclical trend in Hedge funds

The lack luster performance of the first half of 2005 has proven that in the investment business, it is not always an upward swing. This year has been particularly bad for funds employing the much battered convertible arbitrage strategy. The difficulties in credit market also seem to have slowed down the overall hedge fund market. In the second quarter in particular the net asset inflow was flay and even negative, implying that more money was going out of the funds than into it. First quarter raked in $25 billion and was better though not as good as the previous two years. However the slowdown is being seen as short-lived and analysts are upbeat about the revival of the funds shortly. They are even equating it to a ‘marathon’, which denotes prolonged performance and not as ‘sprint’ – a short lived spike. They also see a cyclical trend in the over all landscape of performance of hedge funds wherein every 3-4 years there has been a slowdown after a major economic event such as that witnessed in 2001 and 1998. The funds have thereafter picked momentum and performed!! Money.cnn.com reports:

“The strategy has taken a well-documented drubbing, largely due to a vicious cycle that began late last year when investors in these hedge funds, unimpressed with lackluster returns, began asking for their money back.”

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July 27, 2005 in Research | Permalink