Financial News Online US – An investor in hedge funds tells a story about the day Japanese equities began to fall in 1989. He remembers nervously picking up the phone to call his hedge fund manager,who had made money riding the market on the way up. “I suppose you lost a lot,” he said. “Not at all,” replied the manager. “I reversed all our positions overnight. We made a mint.”

The story illustrates that a talented and nimble manager can keep a step ahead of the market. Investors insist these individuals can still be found, but there is little sign the average hedge fund manager showed such skill in 2006. The average long/short equity fund failed to get out of the market before it fell in May and then missed out on the bounce. The average global macro fund mistimed rises in interest rates and underestimated the fall in the dollar.

That said, the average hedge fund was up between 10% and 11% for the first 11 months, according to a variety of data providers. Hennessee said funds in its database were up 10.06% while HedgeFundNet reported 10.65% and the Barclay Group 10.75%. Managers said, barring accidents, they expected the hedge fund indices to finish the year in double digits.

It would be the best performance for three years – the indices struggled to reach 8% in 2004 and last year – but it would be lower than the main equity indices, with the S&P 500 up 14.2% for the first 11 months.

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