Why October is a Disaster for Equity Long/Short Hedge Funds

In this recent article in Absolute Return, Andrew Beer shares his insights about the recent market volatility and its impact on hedge fund performance.  In the conclusion, he offers a clear directive to allocators:

Excerpt:

For investors in equity hedge funds, the recent poor performance raises a troubling question: if the hedges fail to work in down equity markets – precisely when they are most needed – then these funds have questionable value in a diversified portfolio. A key due diligence question is for allocators to precisely understand issues around trade crowding and, as importantly, factor tilts to be able to correctly anticipate how a given fund should perform in various market regimes. While some funds will be positioned to protect capital in a month like this, most will not – something allocators should make a due diligence priority.

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November 5, 2018