October's robust market rally threw some hedge fund managers' a lifeline after months of losses, but not everyone was saved.
For some of the industry's most watched titans, including David Einhorn and William Ackman, recent gains went a long way toward putting the funds back in the black, according to people familiar with the numbers for several hedge funds.
Einhorn's Greenlight Capital raced ahead 8.5 percent last month and is now up 1.87 percent for the year. Ackman's Pershing Square surged 14.4 percent to nearly erase losses for the year.
For others, October's gains helped extend an already strong record. James Simons' Renaissance Institutional Equities Fund (RIEF) fund, for example, rose 5 percent and is now up 33 percent for the year. Autonomy Capital's Robert Gibbins' Global Macro fund rose 2.7 percent in October, pushing yearly returns to 13.9 percent.
Last month, the Standard and Poor's 500 stock index rose 11 percent on optimism Europe was closer to containing the debt crisis there, a boon to managers nursing wounds after August and September's violent market swings.
October's rally even brought reprieve to this year's biggest losers, but for many, it was not enough to salvage a terrible year.
For the first time in months, John Paulson, one of the year's biggest losers, said his hedge funds recorded gains in every portfolio. Paulson & Co's Advantage Fund rose 4.7 percent last month, bringing total losses to 29 percent for the year. The Advantage Plus Fund, a levered version of the main portfolio, gained 2.4 percent. Still, that fund is down 44 percent for the year.
Paulson's Credit Opportunities Fund and the Paulson Partners Enhanced Fund also remain down, despite gains in October.
Double-digit losses were not rare in a third quarter that Fortress Investment Group Chief Executive Daniel Mudd described as "hellish" on a recent analyst call.
As investors reacted, they redeemed $5 billion in September alone, according to data compiled by BarclayHedge and Trimtabs Investment Research. It was the second industry outflow in three months and sent total industry assets down to $1.72 trillion, the lowest level in a year.
PLAYING IT SAFE
Not everyone scored big last month. Caution earlier in the year saved Daniel Loeb's hedge fund from the same plight as Paulson's, but it also led his firm to miss out on October's bounty.
Loeb, who oversees $7.7 billion Third Point LLC, told investors he had been too cautious last month, in a quarterly investor letter.
"We only gradually increased our exposures near the market bottom and thus underperformed during the dramatic rise in October," Loeb said the letter to investors.
Still, Third Point's $4.3 billion Offshore Fund rose 0.8 percent in October and is up 0.9 percent for the year, faring far better than the average global hedge fund, which has lost roughly 8 percent.
Loeb's leveraged $1.1 billion Third Point Ultra fund is down 1.3 percent through Oct. 31 after gaining only 0.8 percent last month.
Loeb was not the only hedge fund manager who missed out last month's rally.
The effect of whipsaw markets in the third quarter on how managers then invested their money in October was illustrated by minor gains in the Global Diversified Hedge Fund composite index, which returned 1.29 percent last month, according to a report compiled by Bank of America analysts. Meanwhile, the S&P 500 gained 11 percent last month.
"The performance dispersion indicates that hedged funds have been underexposed to the equity market during the rally," Mary Ann Bartels, head of U.S. technical analysis at Bank of America, wrote in a research note Monday.
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