The US Greenwich Global Hedge Fund Index returned +0.61% in December and +11.15% in 2007, outperforming traditional benchmarks for the month and year. The S&P 500, MSCI World Equity, FTSE 100, and Lehman Aggregate Bond Indices posted December returns of -0.69% (+5.50% YTD), -1.37% (+6.49% YTD), +0.38% (+3.80% YTD), and +0.28% (+6.96% YTD), respectively.
“With December’s results in, hedge funds have further demonstrated their resilience to downward moves in the equity markets,” notes Ben Rossman, Senior Vice President, Greenwich Alternative Investments.
“Hedge funds outperformed the S&P 500 by more than +5.5% in 2007; their highest level of outperformance since 2002 when the S&P 500 was down more than 22% and hedge funds ended the year near flat, dropping by less than 1%. In 2007, however, a year during which hedge funds and the S&P 500 were both positive, hedge funds more than doubled the performance of the S&P 500 through a combination of capturing market upside and protecting against downside. Over the last three years, hedge funds have outperformed the S&P 500 by roughly 2% on an annualized basis, despite the S&P having roughly 50% more risk associated with its returns.”
Hedge funds generally take at least 20% of gains and annual fees can be as much as 2%. There is also generally a wide disparity between the ultra returns of the industry leaders and the rest.
For December and 2007, all four of Greenwich’s hedge-fund strategy groups outperformed the S&P 500. The Directional Trading Group, spurred by strength in Macro and Futures strategies, was up +1.22% in December and +10.72 YTD. The Specialty Strategies Group returned +0.51% in December and +16.97% in 2007, largely the result of emerging markets funds which were the top performers for 2007; up +0.92% in December and +22.84% for the year. The Long-Short Equity and Market Neutral Strategy Groups returned +0.71% and +0.15% in December, ending 2007 up +11.50% and 7.92%, respectively.
The Greenwich Composite Investable Index returned +0.27% in December and is up +3.61% year-to-date. The Greenwich Investable Index, comprising 49 constituent funds, adds investability, active management and liquidity to the diversification and performance benefits of the broad Greenwich Global Hedge Fund Index. It references actual hedge fund vehicles as opposed to separately managed accounts or other methods used in an attempt to replicate the returns of hedge fund vehicles.
In related news, The Wall Street Journal reports today that US Senate investigators, stepping up scrutiny of tax-cutting maneuvers, are examining whether Wall Street firms improperly structured transactions that helped hedge funds sidestep dividend taxes, say people familiar with the situation.
Investigators have contacted banks and a number of hedge funds to ask about the use of these derivatives -- complex financial instruments whose values are tied to those of assets such as stocks, commodities or currencies, these people say.
The investigators are examining these transactions to determine whether the securities firms and banks acted improperly by failing to withhold taxes on U.S. stock dividends, these people say.
The Journal says that the probe, by the Senate's Permanent Subcommittee on Investigations, chaired by Carl Levin, was sparked by a Wall Street Journal page-one article in September that reported on efforts by Lehman and other firms to pitch hedge funds with offshore operations on ways to avoid paying taxes on dividends paid on U.S. stocks.
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