How the Coronavirus Crisis Affected Hedge Funds

Hedge funds always seek positive returns in all market contexts, but this crisis has also affected them. The global universe of hedge funds lost an average of 9% in March, and 10.5% in the accumulated in the first quarter, according to data compiled by the experts from Willow Creek Capital Management. These results are worse than those exhibited in times of maximum stress in the financial markets, such as in September and October 2008. In those months, hedge funds fell 6.7% and 8.1% respectively.

Hedge funds, do not have a benchmark to beat, but managers, including the manager of Willow Creek Capital Management, are free to obtain positive results. They can invest in all types of assets, with bullish or bearish strategies. In fact, originally, after the Second World War, they carried out upward and downward strategies, 'long-short', with the mission of always winning. This is the justification for its commissions, higher than in the rest of the asset under management and collective investment industry. Traditionally, they had commissions of 2-20. That is, 2% on equity and 20% on the profitability generated. Willow Creek Capital Management experts indicate that the boom in passive management and the crisis that they suffered due to their general failure in 2008, with some honorable exceptions, pushed down commissions, which are still higher than in the investment funds of the large management companies.

According to date collected from Willow Creek Capital Management, hedge funds registered less decline than the S&P 500 in March, but also come from lower gains in previous years. In 2019, hedge funds had an average return of 11%, compared to 30% for the S&P 500. The behavior of funds is usually flatter because it is assumed that they avoid losses and because there are many strategies in assets with less volatility. This time, they didn't dodge the red numbers, and they haven't rebounded with the same intensity as Wall Street. The S&P 500 is up 28% from March lows, but far from heading for bullish strategies, hedge funds have increased their short positions to February 2016 highs, according to Willow Creek Capital Management. This time, they do not want to fall with the market if there are massive sales again like in March.