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Hedge funds: Staying in the game in a much-changed world

Broadly, hedge funds began to feel the full effects of market turmoil in the second half of 2008, although pockets of outperformance persist. Neil Wilson identifies the strategies likely to do best in a transformed market.

In association with Hedge Fund Intelligence

Market events this past month – from the US government stepping in to support Fannie Mae and Freddie Mac to the filing for bankruptcy of Lehman Brothers and then the last-ditch bail-out of AIG – have come so thick and fast they have no doubt left many outside the hedge fund world reeling with bewilderment. But within hedge fund land, there already was an acute focus on just how well – or badly – hedge funds individually and collectively have done to cope with the market turmoil. Everybody knows that the way they are seen to perform through this highly treacherous period is likely to be critical for their prospects in what seems certain to be a much-changed financial world.

After the first half of the year, I felt that on balance hedge funds had generally done not too bad a job of coping with challenging market conditions. Some, of course had big problems – such as Peloton Partners, which imploded so spectacularly in February. And there was a lot of dispersion in the returns being delivered by individual funds – with many nursing double-digit losses.

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