Hedge Funds Now Criticised for Not Being Short-Term Enough

According to Hedge Fund Research, a series of bad bets by hedge funds were unable to keep up with the markets last year, as the euro zone debt crisis pushed the industry as a whole down 5.2%.

Long-short equity funds were among those who fared worst – losing 8.3% last year.

The losses suffered looked especially bad for an industry used to chasing rapid gains from takeovers and restructuring because the benchmark S&P 500 stock index was flat.

“Many hedge funds are too focused on the medium-term and not enough on price action,” said former head of hedge funds at Unigestion, Philippe Gougenheim. “For instance, some commodities funds that did not do well last year were too focused on the fundamentals, even when the short-term macro environment was not very good.”

Aureliano Gentilini, managing partner at research firm Mathema, said that some hedge funds had shifted to a more “pragmatic approach” following the turmoil created by Europe’s debts, as investors bought and sold almost indiscriminately, and pairs traders suffered; claiming that “fundamentals were no longer relevant in driving performance in (some) underlying asset classes”.

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