Hedge Funds Bear Up Strong Compared to Mutual Funds - 06/19/01

NASSAU ?   Hedge funds far outperform mutual funds and the S&P 500 in down markets, recently released data indicates.
During the 12 negative quarters for the S&P 500 Index over the last 13 ¼ years, the S&P 500 had a cumulative negative return of 62.72% and the average U.S. equity mutual fund lost 67.2% cumulatively, according to Van Hedge Fund Advisors. However, the average hedge fund had a cumulative negative return of just 0.4%.
?This data illustrates the ability of hedge funds to preserve capital in falling markets,? said Dion Friedland, founding president of the Hedge Fund Association and chairman of Magnum Funds.   ?Hedge funds are extremely flexible in their investment options as compared to mutual funds and also carry strong performance incentives that attract many of the investment industry?s best managers.?
Hedge funds refer to funds that can use one or more alternative investment strategies, including selling short to hedge against market downturns, investing in asset classes such as arbitrage, currencies or distressed securities, and utilizing return-enhancing tools such as leverage and derivatives. These strategies and instruments, many of which are used to protect downside risk, are generally beyond the reach of mutual funds due to SEC regulations and disclosure requirements.
The result is illustrated in the following graph, which shows the extent to which hedge funds have protected themselves and outperformed US equities during each of the last 12 quarterly market downturns during the past 13 ¼ years._x000D_
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S&P _x000D_ 500 VAN _x000D_ U.S. Hedge Fund
_x000D_ Index
Morningstar _x000D_ Average
_x000D_ Equity Mutual Fund
_x000D_
1Q90
_x000D_
-3% 2.20% -2.80%
_x000D_
3Q90
_x000D_
-13.70% -3.70% -15.40%
_x000D_
2Q91
_x000D_
-0.20% 2.30% -0.90%
_x000D_
1Q92
_x000D_
-2.50% 5.00% -0.70%
_x000D_
1Q94
_x000D_
-3.80% -0.80% -3.20%
_x000D_
4Q94
_x000D_
-0.02% -1.20% -2.60%
_x000D_
3Q98
_x000D_
-9.90% -6.10% -15.00%
_x000D_
3Q99
_x000D_
-6.20% 2.10% -3.20%
_x000D_
2Q00
_x000D_
-2.70% 0.30% -3.60%
_x000D_
3Q00
_x000D_
-1.00% 3.00% 0.60%
_x000D_
4Q00
_x000D_
-7.80% 2.40% 7.80%
_x000D_
1Q01
_x000D_
-11.90% -1.10% -12.60%
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TOTAL
_x000D_
-62.72% -0.40% -67.20%

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        The Hedge Fund Association is an international not-for-profit association of hedge fund managers, service providers, and investors formed to unite the hedge fund industry and foster better awareness of hedge funds. The organization?s soon-to-be re-launched website is at www.thehfa.org.
Hedge funds suffer from misperceptions about high risk and volatility fueled in
large part by media focus on sharp moves made by global macro hedge funds. Nonetheless, as Friedland points out, the vast majority of hedge funds make consistency of return, rather than magnitude, their primary goal.
There are approximately 5,000 hedge funds worldwide today, a number that has been growing rapidly over the past eight years. Nearly $7 billion flowed into hedge funds in the first quarter of 2001 ? almost as much new money as in the whole of 2000.
For more information on hedge funds, including how to join the HFA, please contact Friedland at dfriedland@hedgefundassn.org