International Herald Tribune – Like the French in August, all taking the same roads to the same places at the same time to try to escape one another, hedge fund managers all seem to be making thesame moves in the same markets in a quest for the perfect trade that no one else has thought of. The results are pretty much the same: a lot of energy expended going nowhere.
An index of hedge fund performance compiled by Morgan Stanley Capital International shows a gain of 3.1 percent this year through July 3, less than half the return of global stocks. Since theindex was created three years ago, it is up a paltry 16.4 percent, compared with 56.6 percent for stocks.
The proliferation of hedge funds – assets in these unregulated pools of capital are estimated to have risen past $1 trillion from $400 billion in 2001 – has made such ordinary performanceunavoidable, analysts who follow the industry say. More than that, they warn, the financial muscle of hedge funds may be eroding the returns that small investors are able to grind out in their ownportfolios by making stock, bond and other markets more volatile and unpredictable.
Hedge funds have been blamed in recent months for spikes up and down in commodity prices; the plunge in American stocks; a steep rise in Indian stocks, and the much sharper decline thatfollowed.
