The assets are falling! The assets are falling!
| Nov 11th, 2007 | Filed under: Hedge Fund Industry Trends, Media Coverage of Hedge Funds | By: Alpha Male |
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Last week, media reports trumpeted that investors removed $3.5bn from equity market neutral hedge funds in September (see data).
This makes perfect sense, really. According to one report it was because some of them “made losses of more than 30% during the previous month, even though they are intended to move independently of the stock markets.”
But it’s often the stories that “make perfect sense” that subsequently go unchallenged and unquestioned. So we thought a sober second thought might be in order…
a) While it’s true that a few high profile funds (out of 9,000) were down big time, the HFRI Hedge Fund Composite Index, a broad measure of hedge fund performance was down only 1.5% – a far cry from “more than 30%“.
b) The S&P 500 was actually up in August, not down. So it’s not clear what this report means by “moving independently of the stock markets“. But even if both the market and the HFRI were down a lot in August, that still wouldn’t say anything about the correlation between the two. After all, two uncorrelated coins flipped together could both end up heads at the same time. Would that mean they are actually correlated after all? (see related posting)
c) But the element that really gives us pause is this: the source of the asset outflow data, database company Barclayhedge, made the same sort of pronouncement last month (about August’s asset numbers) – only to recant a few days later when the firm realized assets had actually grown in July, not shrunk.
In fairness, last month was the first time this particular study had been undertaken. And this new data may well be totally accurate this time, but it underscores the danger of rushing to conclusion regarding hedge fund data – especially when that conclusion is so easy to believe.
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- August Redux? Some hedge fund indices lower and some higher than infamous month from hell
- It’s official: Hedge fund industry assets are growing again. Maybe.
