Hot off the shelf : India-focused hedge funds lose over 25% in 2008

Just because they are big and secretive doesn’t make them safe from market corrections! India-focused hedge funds have lost a jaw-dropping 26.6 per cent till date in 2008, after clocking returns of nearly 52 per cent last year. Hedge funds are believed to be able to generate positive returns, even when the stock markets fall as they use a host of strategies such as short selling, market timing and arbitrage to take advantage of every blip in the market.

The loss suffered by these India-centric funds led by little-known ‘hedgies’ (hedge fund managers), dwarfs the losses made by similar country-specific funds in China (negative 13.7 per cent), Russia (negative 4.6 per cent), Brazil (negative 4.2 per cent), real-time estimates captured from hedge fund tracking firm HedgeFund.net (HFN) show. The developments are in line with the difficult period faced by funds such as Monsoon Capital, a $1.2 billion hedge fund firm, which lost over 40 per cent till March 20. Hedge fund managers earn fat fees, sometimes as high as 20 per cent, for earning high returns.

The financial market turmoil that clamped down on fund flows into emerging markets such as India, and apprehensions about the effect of US recession on domestic companies have resulted in Indian investors cumulatively losing nearly Rs 20 lakh crore in wealth, as shares prices have plunged.

India whining

After a less punishing February, where 40 India-focused hedge funds lost just 3.2 per cent, the pain continued in March. Fifteen such funds have already reported losses aggregating to over 14 per cent for March, HFN’s India-specific average shows. It could get much worse as more than half the funds are yet to turn in their numbers. Interestingly, hedge funds focused on US, the original root of the current financial conundrum, have lost only 2.3 per cent in all of 2008, with the month of January alone accounting for the bulk of losses.

Difficult March

The majority of hedge fund strategies lost ground in March contributing to the first negative Q1 performance on record. Increased volatility surrounding the ultimate failure of investment banking giant Bear Stearns and the ensuing the US Treasury actions defined a difficult month, HedgeFund.net said while releasing the March estimates. Overall, hedge funds with a country-specific mandate have performed the worst (negative 12.5 per cent) this year, followed by long-only funds (negative 10.7 per cent) and capital structure arbitrage funds (negative 8.8 per cent).

source: Sify Piece by Kumar Shankar Roy

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