Hedge Funds Q3 Decline Small in Wake of Equity Losses

October 16, 2002 (PLANSPONSOR.com) - Despite steep US equity losses in the third quarter, the Average US Hedge Fund ended the period down only 3.6% net of fees, according to Van Hedge Fund Advisors International, Inc.

The Average Offshore Hedge Fund lost 2.5% net for the quarter. Stock portfolios generally suffered much harsher results as the S&P 500, Dow and NASDAQ plunged 17.3%, 17.4% and 19.8%, respectively.

Of the fourteen hedge fund strategies tracked in the report, Short Selling has easily been the most successful in 2002.

While most hedge funds have the ability to sell short to some extent, Short Selling strategy funds specialize in the practice, making them obvious beneficiaries in bear markets, Van Hedge said.

On a global basis, these funds averaged a net gain of 5.9% in September, 14.1% in the third quarter and 33.6% for the year to date. Most strategies, however, posted a loss last quarter, with Several Strategies, Emerging Markets and Value showing the largest losses, according to Van Hedge.

The third quarter also proved to be difficult for hedge funds specializing in industry sectors as Media/Communications funds lost 10.5% net, Health care funds fell 7.1% net, Financial Services funds lost 2.4% net and Technology funds lost 2.1% net.

For September, the top strategies were Offshore Short Selling and US Short Selling, with net returns of 5.9% and 5.8%, respectively, followed by US Market Neutral Arbitrage and Offshore Market Neutral Arbitrage, each with a net return of 0.7%.

For the third quarter of 2002, the best performing strategies were US Short Selling, Offshore Short Selling and Offshore Market Timing, with net gains of 15.8%, 12.4% and 2.3%, respectively.