Drawdowns represent a loss of investors' capital/drop in net asset value (NAV) of a hedge fund. There are two interpretations in drawdown. First, there are drawdowns in long only investments. For example, in mutual funds it could be attributed to decline in the value of market index as it is exposed mainly to market risk.
Hedge funds, as the name connotes, hedge market risk exposure by their ability to go long, short, or take spreads, etc. Thus, the second interpretation is if there is drawdown in a hedge fund it must be attributed to the loss of manager skill, not because of the general market decline.
The following article discusses how GlobeOp Forward Redemption Indicator had demonstrated the third-lowest figure of 2.71% this year, in stark contrast to 19.27% in November 2008 after the Lehman debacle. It can be read as investors placing their faith in hedge funds to weave through the volatility.
Hedge funds provide a good diversification tool when added to traditional asset classes such as stocks and bonds, as they have low correlation to the market (<1 for each asset class).
Excerpts from Investors Back Hedge Funds Amid Turbulence:
Investors are largely sticking with hedge funds to guide them through the summer's highly volatile markets, data showed on Thursday, despite lacklustre performances so far this year from these freewheeling portfolios.
The GlobeOp Forward Redemption Indicator -- a monthly snapshot of clients giving advance notice they want their money back as a percentage of GlobeOp's assets under administration -- was 2.71 percent, the third lowest figure seen this year.
Whilst up from July's 2.08 percent, it is still well below the 4.01 percent seen in June and well below the 19.27 percent recorded in November 2008 shortly after the collapse of Lehman Brothers.
"Where do investors put their money?" GlobeOp CEO Hans Hufschmid told Reuters. "There's fixed income, but the Federal Reserve said we'll have close to zero interest rates for the next two years. That leaves equities or hedge funds, which are as good a place to be as any."
Hedge funds, as the name connotes, hedge market risk exposure by their ability to go long, short, or take spreads, etc. Thus, the second interpretation is if there is drawdown in a hedge fund it must be attributed to the loss of manager skill, not because of the general market decline.
The following article discusses how GlobeOp Forward Redemption Indicator had demonstrated the third-lowest figure of 2.71% this year, in stark contrast to 19.27% in November 2008 after the Lehman debacle. It can be read as investors placing their faith in hedge funds to weave through the volatility.
Hedge funds provide a good diversification tool when added to traditional asset classes such as stocks and bonds, as they have low correlation to the market (<1 for each asset class).
Excerpts from Investors Back Hedge Funds Amid Turbulence:
Investors are largely sticking with hedge funds to guide them through the summer's highly volatile markets, data showed on Thursday, despite lacklustre performances so far this year from these freewheeling portfolios.
The GlobeOp Forward Redemption Indicator -- a monthly snapshot of clients giving advance notice they want their money back as a percentage of GlobeOp's assets under administration -- was 2.71 percent, the third lowest figure seen this year.
Whilst up from July's 2.08 percent, it is still well below the 4.01 percent seen in June and well below the 19.27 percent recorded in November 2008 shortly after the collapse of Lehman Brothers.
"Where do investors put their money?" GlobeOp CEO Hans Hufschmid told Reuters. "There's fixed income, but the Federal Reserve said we'll have close to zero interest rates for the next two years. That leaves equities or hedge funds, which are as good a place to be as any."
