March 17, 2020 / 1:37 AM / 3 months ago

Hedge funds hit in selloff, but outperform market

NEW YORK (Reuters) - Hedge funds have taken a hit in the broad equities selloff, but have still outperformed the wider market, according to a research note from Morgan Stanley and a hedge fund solutions firm.

Morgan Stanley analysts estimated that hedge funds across all strategies were down an average of 7.6% year-to-date versus a decline in the MSCI AC World Index of around 20% at the time. The note was sent Monday morning, before U.S. stocks sank another 12%, and the analysts said at that point they were yet to see “capitulation,” or panic selling that some believe could lead to a bottom.

“After the worst week for the market since the Financial Crisis, performance has definitely been hit,” wrote John Schlegel, one of the authors of the paper.

Rob Christian, co-head of research and investment management at hedge fund solutions group K2 Advisors, part of Franklin Templeton Investments, said that in early February, most hedge funds “were not situated for this.”

“This (coronavirus) caught the market off guard and hedge funds off guard,” he said ahead of Monday’s selloff. “Some did turn their book around and catch the down move, some went into defense, but in general the hedge funds have had negative performance, but outperformed the underlying cash market.”

Some hedge funds have fared better than others in the shake-out.

Bridgewater, the world’s biggest hedge fund manager in large part because of its reputation for predicting macroeconomic moves, was caught off-guard by market turmoil over the first half of March. Its large Pure Alpha II hedge fund, which invests across all major asset classes, had lost about 20% for year-to-date as of Thursday, according to media reports.

However, Boaz Weinstein’s main Saba Capital Management LP hedge fund reported a 33% gain in March through Friday amid coronavirus-led market turmoil, bringing its year-to date gain to 67%, according to a note sent to clients seen by Reuters.

Reporting by Megan Davies; Additional reporting by Lawrence Delevinge; Editing by Leslie Adler

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