Protecting Capital and Hedging Risk

Posted by Bull Bear Trader | 9/12/2008 07:32:00 AM | , | 0 comments »

Yet another article about how poorly hedge funds are doing this year, with the average fund losing more than 4 percent to date (see NY Times article). Compared to the general markets, not terrible, but certainly not what many investors in hedge funds are looking for when making such investments. The term 'hedge fund' has come to mean a number of things over the years. It will be interesting to see if the recent market troubles will cause some to go back to the basics of hedging and protecting assets. Protecting capital, in addition to generating alpha, may come back in vogue again, offering even more opportunities for those with both investment and risk management expertise.

Update: Of course, this is not as easy as it seems. As also reported recently in a New York Post article, funds with a "simple and traditional" long-short strategy are also down 3.2 percent, with some down over 20 percent. Good managers are still in short supply, and even the good ones get it wrong every now and then.