Cautious Hedge Funds. . .

In 1998's first quarter, most hedge funds lagged far behind the U.S. stock market, which gained 14% as measured by the S? 500 index. Global funds with bearish positions on Asian markets posted the highest returns. Short-sellers had another tough quarter, losing an average of 11.5%.
Strategy 1998
First Quarter

Relative Value 3.0%
Long/Short Equity
Long undervalued equities/short overvalued equities 2.4
Convertible Hedging
Long convertible bonds or preferred/short underlying common 3.6
Bond Hedging
Yield curve arbitrage or long/short debt positions 2.2
Multiple relative value strategies, including those listed above 3.9

Event-Driven 13.8
Deal Arbitrage
Long and short equity securities of companies involved in corporate transactions 3.7
Long undervalued securities of companies usually in financial distress 6.4
Long and short based on deals, bankruptcies and other events 6.5

Equity Hedge Funds 18.2
Domestic Long Equity
Long undervalued U.S. equities/short selling used sparingly 6.2
Domestic Opportunistic Equity
Long and short U.S. equities, with ability to be net short overall 3.8
Global/International Equity
Primarily long undervalued equities, with some ability to sell short 10.4

Global Asset Allocators 16.8
Long or short markets based on qualitative/fundamental analysis 5.9
Long or short markets based on trend-following or other quantitative techniques 3.1
Short Selling
Short sale of U.S. equities with expectation of price decline -11.5

Evaluation Associates' 100 Index 4.1

S&P 500 14.0


  1. What are some of the problems of comparing hedge fund performance to the S&P 500?
  2. How would you adapt your performance evaluation to look at hedge funds?
  3. How would you judge the performance of short selling equity funds?