Hedge funds lost an average of 2.7% through May 27, according to the HFRX Global Hedge Fund index, as the sovereign debt crisis in Europe triggered declines in stocks, the euro and commodities, and the gap in yields between U.S. short-term and long-term debt narrowed.
The drop marked the biggest decline since November 2008, when hedge funds lost 3% in the wake of Lehman Brothers Holdings Inc.’s bankruptcy two months earlier.
Almost every strategy lost money in May, according to Hedge Fund Research Inc. in Chicago, as the Dow Jones industrial average sank 7.6% including dividends amid speculation that Greece’s debt problems would spread to nations such as Spain and Portugal. Some of the best-known funds saw their gains for this year erased.
“Attempting to manage risk in an environment where everything that could go wrong does go wrong seems like a fruitless endeavor,” said Brad Balter, who runs Balter Capital Management LLC, a Boston firm that invests in hedge funds for clients. “The only defense that seems to work in months like these is being in cash.”
Still, some funds did make money last month.
Caxton Associates LLC, the New York-based firm founded by Bruce Kovner, rose 1% through May 21 with its largest fund as currency trades paid off, an investor said. The fund is up 4.5% for the year.
Autonomy Capital Research LLP, based in London, climbed 0.7% through May 21 and about 12.5% for the year, according to people with knowledge of the fund. Robert Gibbins, manager for the $1.5 billion firm, said his trades were based on the forecast that global economies won't improve until currencies are better aligned, and in particular Chinese officials agree to let the yuan strengthen, he said. Mr. Gibbins said his profitable trades included wagers that the S&P 500 would fall and that interest rates in a number of countries would slide.
A spokesman for Caxton declined to comment.
The price swings in May haven’t changed hedge fund managers’ views on whether global economies are rebounding or shrinking.
“Managers who are positive are still positive, and negative managers are still negative,” said Charles Krusen, head of Krusen Capital Management LLC, a New York-based firm that invests in hedge funds for clients.