Not All Hedge Funds Have Had Rough Years

You may think when you open up the Wall Street Journal or the business section of your local paper that all hedge funds have had a terrible year. That's just not true. Like with anything else, chaos for one is opportunity for another.

The hedge funds that have had tremendous years (100%+) have succeeded where other hedge funds have failed. Other hedge funds that have lost money have had their fortunes closely tied to the health of the credit markets; when subprime collapsed, a great number of hedge funds took a beating.

However, some hedge funds shrewdly bet that the credit markets would in fact start to disintegrate, and have profited handsomely from this bet. How did they profit when the market was going into the toilet?

They bet against mortgage-backed indices, such as the CMBX, or the ABX, which tracks baskets of bond issues. As concerns spread about widening home-loan credit defaults, these indices plunged and some hedge funds profited handsomely.

Lahde Capital Management has seen returns of over 400%. Paulson + Co.'s Credit Opportunities Fund surged 27% in August, putting it up over 410% for the year. Balestra Capital Partners LP, with about $400 million under management, has seen the value of its fund shoot up over 115% YTD, and 15% in August alone.

So as you can see, not all hedge funds are suffering in this environment. So are, in fact, flourishing.

Filed under: Hedge Fund News | General Market News