According to Bank of America Merrill Lynch's hedge fund trend monitor, hedge funds lost an estimated 5.02 per cent in the three months to September 30, the fourth worst quarterly performance in more than 15 years. Performance losses in the third quarter are expected to be surpassed by only the final two quarters of 2008, encompassing the collapse of Lehman Brothers and the systemic meltdown in its aftermath, and the third quarter of 1998, when Russia defaulted on its debt, the report said. The third quarter of 2008 was the worst quarter for hedge fund performance in the past 15 years, when the average hedge fund fell 9.48 per cent, according to Bank of America Merrill Lynch.
Investors said that there has been a larger than normal disparity in returns across different investment strategies – and even within them, managers have posted a bigger range of performance figures. Global markets were driven by a “risk-on/risk-off” mentality, where investors moved in and out of risky assets together depending on the prevailing economic sentiment and risk appetite. In the third quarter, when the FTSE 100 index suffered its worst quarter in nine years, this resulted in a high correlation between different asset classes.
Chris Jones, chief investment officer at fund of funds firm Key Asset Management, said: “Noise in the equity markets has been astronomical. It has rendered them almost untradeable and very difficult for fundamental managers to make money in the short term.”
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