Hedge fund winners in a decade of ups and downs

Big may not always be better, but for investors in some of the world’s largest hedge fund managers whose flagship funds have made money this year, it has proved safer. True, some of the gains by the largest managers have been meager –and those losing money far outnumber those making it.

Asset size was no fail-safe protection against investment losses: Being with a big name doesn’t mean you’re any more protected in terms of returns. The fact that only 19 of 80 large managers that reported September results are in the black this year compares badly with the 67 of the top 100 that reported their flagship portfolios were up at the end of last year.

However, many investment firms avoided very large funds. After the sub-prime crisis we could see liquidity being an issue so many have been biased towards smaller funds. In the third quarter we have seen some big names down 20% or 30%.

Hilga Merchewitz of Prime One Capital comments: “The big funds tend to have some private equity and illiquid credit instruments and convertible bonds. If they see redemptions there would be large amounts of money to be raised.”

The fate of funds run by the largest 100 managers matters, because about 81% of the industry’s $1.72 trillion is entrusted to them.