UPDATE 1-May's market rout hurts many hedge fund managers

Tue Jun 7, 2011 3:34pm EDT

* Big hedge funds post prominent losses in May

* Financial groups, commodities, weigh on performance (Updates with additional data, quote)

By Svea Herbst-Bayliss

BOSTON, June 7 (Reuters) - May turned out to be a zero for famed hedge fund manager David Einhorn, but it was far worse for John Paulson and Paul Tudor Jones.

For the second year in a row, the month of May proved treacherous for some of the world's biggest and best known investors as they grappled with tumbling commodity markets, fears about the speed of global growth, and Europe's debt crisis.

Preliminary data from the Hennessee Group shows that the average portfolio lost 0.50 percent last month while Hedge Fund Research said that its HFRI Fund Weighted Composite Index dropped 1.28 percent. Despite May's declines, the average hedge fund is still up 3.20 percent for the year, less than the broader Standard & Poor's 500 which is up about 7 percent for the year.

But several big funds had far worse news for their investors, people familiar with the numbers said.

John Paulson, whose calls have been among the market's most closely watched ever since he made a fortune betting against the housing market, said his Advantage Plus fund lost 6 percent. For Paulson, long-standing bets on financial institutions like Citigroup (C.N) and Bank of America (BAC.N) brought down returns.

Paul Tudor Jones, popular for his string of strong performances, saw his BVI Global Fund lose 3.4 percent last month.

And David Einhorn, who made headlines last month with plans to become a minority owner of the Mets baseball team, reported a 0.00 percent return in May, leaving the Greenlight Capital Offshore fund down 2.32 percent for the year.

Even superstar investor Dan Loeb's Third Point Offshore fund was off a smidgen in May, although that barely dented his 9.7 percent return for the year.

"People lost money in May because they were short the dollar and the dollar rallied, commodities took a killing ... and Treasuries rallied due to the crisis in Europe," said Charles Gradante, co-founder of Hennessee Group.

Indeed so-called equity long/short funds that oversee the bulk of the industry's roughly $2 trillion in assets, posted the biggest decline last month, losing 0.73 percent, which leaves them off 6.79 percent this year, data from Bank of America's Merrill Lynch unit shows.

Not surprisingly, performance at some managers running commodity-heavy portfolios was even bleaker during a month when oil prices fell about 10 percent and silver prices tumbled about 20 percent.

Clive Capital's $4.1 billion Clive Fund lost 11 percent through May 20, according to people familiar with the numbers. Michael Coleman and Doug King's Merchant Commodity Fund tumbled 7.21 percent in May.

BlueCrest Capital, which planned to stop access to its Blue Trend Fund soon, reported that the $9.4 billion fund lost 5 percent in May, but remains up 4 percent for the first five months of the year.

Hedge funds are not required to disclose their performance numbers to the public, so any snippets about how the industry's biggest funds performed are watched closely.

Some of the managers already began cautioning their investors that the times ahead might be a little rockier, and by underscoring that they are making bets for the long term.

Still, demand remains high with industry trackers TrimTabs and BarclayHedge reporting that funds pulled in $17.5 billion in assets in April, marking the fourth straight month of inflows. (Additional reporting by Matthew Goldstein. Editing by Robert MacMillan)

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