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Memories of '08: A hedge fund checkup

swon@globeandmail.com

What are we looking for?

How hedge funds that were stars during the 2008 market meltdown are faring in calmer times.

The screen

We looked at the top 15 funds in the alternative strategies category for 2008 to see how they have performed since then. U.S. dollar, duplicate versions and funds closed to new investors were excluded.

What did we find?

Some of the stars are struggling as markets have rallied.

CI Trident Global Opportunities run by Nandu Narayanan of Trident Investment Management surged 44 per cent in 2008 as he made money with strategies such as shorting mortgage lenders. Over five years ended Oct. 31, his fund has a 21-per-cent annualized return, but it lost nearly 4 per cent in 2009, and 2.3 per cent in the first 10 months of this year. What gives?

"Nandu's fund is a true hedge fund, and is a non-correlated asset," said Derek Green, president of CI Investments Inc. "When the markets are doing well, I wouldn't expect him to do particularly well." Mr. Green said investors should view the fund as portfolio insurance. "In case the TSX, S&P and MSCI World blow up, then he is well positioned."

Mr. Narayanan is "very bearish" on the United States and countries, such as Greece and Ireland, on the periphery of Europe, Mr. Green said. "He believes that their level of debt is insurmountable, and politicians don't have the will to deal with it."

The fund is shorting the U.S. dollar against currencies pegged to the greenback and is heavy with gold stocks, bullion and oil stocks.

Another 2008 star, Tetra U.S. Long/Short Fund gained nearly 20 per cent in 2008, but has been in the red since. It lost 6.9 per cent in 2009, and is off 2.9 per cent this year.

"The underperformace is the result of being net short, and focused on small-cap value," said James McGovern, chief executive officer of Arrow Hedge Partners. The "market darlings" have been growth-oriented technology companies and commodity producers, he said.

The fund has been shorting some consumer discretionary names such as Royal Caribbean Cruises Ltd., but those positions haven't worked out, he said. Still, the fund's managers think that those kinds of "stocks are really extended," Mr. McGovern added.

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HOW TOP PERFORMING HEDGE FUNDS IN 2008 HAVE FARED SINCE

(As of Oct. 31)% rtn% rtn% return (for periods ending Oct. 31, 2010)
Fund nameLatest MERAssets ($-mil)20082009YTD1-yr2-yr3-yr5-yr10-yr
Auspice Diversified Commodity LP--44.32-7.938.209.134.0512.90--
CI Trident Global Opportunities2.65137.743.62-3.68-2.32-4.201.8314.5321.09-
IMFC Managed Futures Fund-0.137.98-10.569.9613.051.30---
Silvercreek Capital LP-8.428.0872.971.120.0127.3131.73--
Man AHL Diversified (Canada) Cl-A--26.49-18.0716.7713.601.646.43--
Fiera Global Macro-70.823.89-3.490.01-2.41-1.0610.77--
Tetra US Long/Short-19.64-6.87-2.92-6.38-5.394.09--
Fiera N.A. Market Neutral II-212.510.0126.81-0.700.5614.4713.89--
Sprott Bull/Bear RSP A3.54157.08.180.3320.9630.3515.9710.6015.86-
Act II New Media-6.67.082.258.9713.846.13--
Sprott Hedge L.P. II-Cl A3.09586.06.12-0.6521.8630.7415.9110.1014.87-
SciVest Market Neutral Equity--6.03-1.94-0.08-4.93-0.164.092.34-
Polar Altairis Long/Short Class A2.9255.05.7819.45-0.071.4412.018.2010.6214.28
Formula Growth Hedge Fund Class A--3.8416.823.136.297.658.456.66-
Spartan Multi Strategy Fund Class I--2.8626.464.046.1913.8513.36--
S&P 500 Composite ($ Cdn)---23.765.513.297.981.14-6.44-3.28-5.76
S&P/TSX Composite Index---35.0330.697.9216.1813.95-4.654.072.78
Source: Globe Investor

© 2007 The Globe and Mail. All rights reserved.

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