The hedge-fund industry just had its fourth-worst quarter on record, according to one industry watcher.
Hedge funds lost 5.5% in the quarter, according to Hedge Fund Research Inc., “trailing only the third and fourth quarters of 2008 and the third quarter of 1998.”
This is not surprising – as I have mentioned before there is this impression that hedge funds are money making machines when in reality many are less equipped to deal with market volatility than ordinary punters. Hedge fund managers are no different to your standard fund manager in that they act as a drag upon the performance of the funds they manage.
Times are tough for trend followers at present because despite the fact that markets are future pricing mechanisms they have been very event focussed in recent times. The problem with this is that the events driving sentiment are inconsistent one day to the next. This inconsistency coupled with poor liquidity means that moves are often snuffed out before they generate sufficient energy for trend followers.
The only way to survive this is to practice risk control which interestingly is something vast numbers of hedge funds do not practice. This time will pass as it always does but if you have no money left you cant play.