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How The Debt Ceiling Increase Helped The Majority of Hedge Funds

Hedge fund returns rose by an average of 0.8 percent in October, after global stock values grew in light of the increase in the U.S. debt ceiling, which prevented the nation’s default. President Barack Obama signed a law on October 17th, which put an end to the 16-day government shutdown, and extended the state’s borrowing power. The extension will allow the nation to continue acquiring debt until early next year.

Bill Ackman

According to the Bloomberg Hedge Funds Aggregate Index, hedge funds overall returns are still 2.2 percent lower than in July 2007, when the Index reached its highest value. Around 1,470 firms of slightly below 2,400 funds the Index tracks, reported gains in October.

Hedge Fund Intelligence’s Absolute Return Composite Index on the other hand, indicates an 1.03 percent gain in returns for the same period. For the year, this represents a 6.11% rise in the Index’s value, meaning hedge funds can still outperform last year’s achievement of 6.49% gain on returns.

Some hedge funds did better than others, as Anthony Lawler, portfolio manager of the $120 billion Swiss equity management firm GAM, explained. “Managers with significant equity-related positioning, and to a lesser extent long credit exposure, benefited, while those primarily trading other asset classes, such as currencies and rates, generally did not see strong results.”

The $9 billion equity hedge-fund Maverick Capital run by Lee Ainslie, for example, experienced an increase of 1.3 percent in October.  Bill Ackman’s Pershing Square Capital Management LP on the other hand, saw net gain increase by 7.9 percent during the same period.

In contrast to these winners, Passport Capital LLC’s Global Strategy, which belongs to the investment firm run by John Burbank, fell 2.2 percent in October. Ken Griffin’s Citadel Investment Group had no such problems, as the $17 billion firm gained 1.8 percent.

Solus Alternative Asset Management and Eton Park Capital reported gains of 3.1 percent and 3.6 percent respectively, a significant contrast to the minor increases experienced by most hedge funds. Christopher Pucillo‘s Solus Alternative Asset Management’s flagship fund, Sola, has even achieved an impressive 26 percent gain this year, compared to Eton Park Fund LP’s 16 percent increase over the same period of time.

Disclosure: none

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