Bloomberg News

Hedge Funds Trailed Stocks Last Month With 0.2% Advance

August 07, 2012

Paulson & Co. President John Paulson

John Paulson, president of Paulson & Co. Inc. Photographer: Jin Lee/Bloomberg

Hedge funds including MKP Capital Management LLC posted gains last month as global stocks rallied after European Central Bank President Mario Draghi pledged to defend the euro.

Funds climbed 0.2 percent in July, according to data compiled by Bloomberg. Global macro (BBHFMCRO) funds advanced while long- short equity and multistrategy (BBHFMLTI) managers declined. John Paulson, the billionaire coming off record losses in 2011, posted declines in his Advantage funds.

Hedge funds trailed stocks as the MSCI All-Country World Index (MXWD) returned 1.4 percent last month on speculation the ECB would buy bonds to help cut borrowing costs and save the euro. Macro funds, which bet on economic trends, rose 0.2 percent in July and are down 2.4 percent this year, as government intervention and declining trading volumes limit managers’ ability to make large bets. Louis Bacon told clients he’s giving back about 25 percent of the money in his main fund.

“People are in that cautious watch-and-don’t-do-anything mode,” Emma Sugarman, global head of capital introduction at BNP Paribas SA in New York, said of hedge-fund managers. “We had some pretty intense intra-month volatility.”

Hedge funds advanced 1.9 percent in the first seven months of the year, compared with a 7.5 percent gain for equities worldwide, including dividends.

MKP Opportunity

MKP, the $4.9 billion New York-based firm, climbed 1.4 percent in July in its MKP Opportunity fund, bringing this year’s gain to 4.7 percent, according to a person with knowledge of the matter, who asked not to be identified because the information isn’t public. The fund has $2.5 billion in assets and is run by Patrick McMahon. Konstantin Shishkin, a spokesman for MKP Capital, declined to comment on the returns.

Long-short equity funds, whose managers can bet on rising and falling stocks, decreased 0.2 percent last month and 3.5 percent in 2012.

“During the month of July, what hurt long-short equity managers was low net exposure,” said Don Steinbrugge, managing partner of Agecroft Partners LLC, a Richmond, Virginia-based firm that advises hedge funds and investors. Net exposure is calculated by subtracting the percentage of a hedge fund’s short positions, or bets on falling securities, from its long holdings, or wagers on rising stocks.

Kingdon Capital Management LLC, the $2.5 billion hedge fund run by Mark Kingdon in New York, posted a 0.6 percent decline last month in Class A Series 1 shares of M. Kingdon Offshore Ltd., a global long-short equity fund, reducing its year-to-date gain to 5.5 percent, according to a client letter, a copy which was obtained by Bloomberg News. Patrick Clifford, a spokesman for Kingdon Capital, declined to comment on the returns.

Paulson’s Declines

Multistrategy hedge funds fell 0.2 percent last month and 4.1 percent this year.

Paulson posted declines in his Recovery funds last month, while his merger-arbitrage, credit and gold funds rose.

The Advantage Plus Fund, which seeks to profit from corporate events such as takeovers and bankruptcies and uses leverage to amplify returns, fell 2 percent in July and 18 percent this year, New York-based Paulson & Co. said yesterday in a letter to clients. Event-driven managers bet on companies facing mergers, spinoffs and bankruptcies. Paulson’s Gold Fund, which can buy derivatives and other gold-related investments, rose 0.2 percent in July and has decreased 23 percent this year. Slumping gold-mining stocks have contributed to the strategies’ drops this year.

Merger Fund

The firm’s merger arbitrage, credit and recovery funds, which comprise more than 60 percent of the firm’s $21 billion in assets, rose this year on the firm’s “long event positions,” Paulson wrote.

The Paulson Partners Enhanced fund, which invests in the shares of companies involved in mergers, rose 1.3 percent last month and 5.4 percent this year.

Paulson’s Credit Opportunities Fund increased 0.9 in July and 3.8 percent this year. The fund jumped 590 percent in 2007, largely because of Paulson’s bets against the U.S. subprime mortgage market.

Paulson’s Recovery Fund, which invests in assets Paulson believes will benefit from a long-term economic rebound, such as financial services, insurance, hotels and real estate companies, fell 0.8 percent in July and gained 3.9 percent in the first seven months of 2012.

The main Bloomberg hedge fund index is weighted by market capitalization and tracks 2,786 funds, 1,214 of which have reported returns for July. The index is down 12 percent from its July 2007 peak.

To contact the reporter on this story: Kelly Bit in New York at kbit@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net


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