Inside perspective on hedge funds in a down market

[Scorpion Man]

from a major investment bank that deals with hedge funds (in a private email...this was not published):

Yesterday saw broad market declines in US equity and bond markets, triggered initially by 9% decline in Chinese markets. We looked this morning at the impact on our US-based long-short equity clients and found the following averages:

- Yesterday cost our clients on average 180bps of performance, driven primarily by decline of 350bps on their long positions
- Clients short positions saved them, generating 411bps of return and capping clients losses at 52% of the broader market losses (S&P lost 347 bps)
- Yesterday's losses reduced clients MTD performance from 250bps to 65bps
- Losses were fairly evenly dispersed across all strategies.
- Interestingly, "market neutral" funds lost 92bps despite
- Net and gross exposures were down only slightly on the day, suggesting that clients did not dramatically change their exposures intra-day.

[midas]

SM:

It will be interesting to see if one fund or prop desk was overly long China and gets wacked.

M