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India-focused hedge funds lost 46% in ’08

Often-touted as manipulative, hedge funds have been time and again blamed for indiscriminate selling and thereby pulling down the domestic stock prices even in India.

 But India-focused hedge funds have also been affected by the meltdown.

The big and secretive India-focused funds have booked losses to the tune of 46% in 2008 — in the process effectively wiping out the 50% returns clocked by the posted by them in 2007. Hedge funds have an aggressively managed portfolio of investments which use advanced investment strategies such as leverage, long, short and derivative positions in both domestic and international markets with the goal of generating high returns.

While 'hedgies' (short form of hedge fund managers) of India-focussed funds could say that their funds have fallen less than the benchmark i.e. Sensex (-55%), their insipid performance could make them one of the worst performing country-specific funds in not only Asia, but probably the entire world. “The risk is clear. That is more forced selling by leveraged hedge funds….for the anticipated relief rally to occur for the remainder of the year, the US dollar and the yen need to stop rallying, or at least take a breather. For this foreign exchange action remains the surest evidence of forced deleveraging. And there is no doubt that the redemption pressure in the hedge fund industry remains brutal,” Christopher Wood, chief strategist of Hong Kong'sCredit Lyonnais Securities Asia (CLSA) said.

Hedge fund firms such as Renaissance Technologies, Old Lane, DE Shaw and Och-Ziff Capital Management (all of which are amongst the top ten in the world) have received Sebi approval to operate as FII in India. Data from performance tracker firm shows that amongst country-specific hedge funds, the funds which had invested in India (-46%) have posted the worst returns which puts them behind the ones from China (-31%), Russia (-34%), Brazil (-14%), Japan (-13%) and US (-7%).

Like local MFs facing pressure here, India-focussed hedge funds have also faced redemption pressure. This has contributed to 'hedgies' selling stocks, sometimes even at losses, to give cash back, industry observers say. A hedge fund manager based out of Singapore said that many felt the months January and February were the most tough for hedge funds but as the year unfolded, Indian stocks went from bad to worse, rubbishing the notion that emerging market strategies such as exposure to India and China's fast growing economies could withstand shocks better than other parts of the international business system.

A sharp slide in rupee value has also hurt hedge funds as they are getting less number of dollars at the time of conversion. India-focussed funds, which had assets worth $14 billion at the end of 2007, have seen the full circle as higher allocations to the country have not repeated the 2007 performance this year.

Source: Times of India

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