Hedge Fund Returns Were Jolted by the COVID-19 Black Swan
April 10, 2020
Investors could expect some eye-watering numbers from their hedge fund managers this month. As panic gripped global capital markets, managers were either vindicated or caught off-guard.
Some managers, however, were less lucky. Ray Dalio’s Bridgewater Associates lost an estimated 20% in their flagship fund as they were heavily tilted to equities during the market rout.
“What has occurred is considered a Black Swan event and what is continuing to occur is extreme volatility of individual stocks (15-20% daily swings),” says Sunil Rao from Jupiter Capital. “Most individual technical, quantitative and fundamental-driven research/models (associated with listed equity securities) have taken a beating in the short-term and every manager is most concerned with their Fund model’s ability to manage the new environment and associated inherent risk.”
With elevated levels of volatility and lower visibility of how the economy recovers from such a deep impact, hedge funds could be bracing for plenty more risk ahead.