NEWSLETTER: The bonniest flower ...

As the affects of the credit crunch start to ripple (thunder) out, the sectors experiencing the biggest routs are the erstwhile darlings of alpha bounty hunters.

The woes of the hedge fund sector are well known. Hedge fund industry éminence gris George Soros has said he expects the global hedge fund industry to shrink by 50% to 75%. And indeed, figures released on Friday by the Chicago-based research outfit Hedge Fund Research (HFR) show the decline bedding down in Asia, with AUM in the Asian hedge fund sector dropping 13% in the third quarter.

Meanwhile, the large US foundations which led the institutional charge into hedge funds are sounding the retreat, and other data from HFR show this year to have been the worst on record for hedge funds, with the average partnership losing 15.5% of assets in October alone.

But nowhere perhaps has the transition from Wunderkind to basket case been more abrupt than in the European emerging markets. As the IMF moved in to prop up both the Ukraine and Hungary with substantial loans, and Russia and Kazakhstan announced extensive bail-out packages for their banking sectors, even Stockholm-based CEE specialist investment house East Capital has had to concede that things are looking difficult.

“October was unfortunately another in a row of bad months for our markets,” says Peter Elam Håkansson, the firm’s chairman, in East Capital’s November newsletter.

With CEE currencies sliding against the US dollar, stock markets in the likes of Serbia and Bulgaria were down 46% and 44% respectively in dollar terms in October, while the Russian market tumbled 36% as Russian oligarchs turned out to be drowning in debt.

This leaves East Capital with some stiffening year-to-date numbers for its funds. Its Russia fund, once the best performing fund in world, is down 67.5% in dollar terms. As we have before had occasion to note on the pages of funds europe, sadly that old Calvinist adage so often holds true: the bonniest flower wilts the quickest...

East Capital advises investors not to lose a long-term perspective on the markets. Very sensible, but this will certainly require some nerve. To quote Vincent Cassel’s character Max in the 1996 film L’Appartement (upon discovering the woman obsessively pursuing him is dating his best friend), “Un vodka! Un double!

Fiona Rintoul, Editorial Director
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