Hedge Funds Sit Out Stock Market Rally

In an era of non-stop news, even hedge fund managers, who once shunned reporters’ phone calls, are now being forced to interact with the media. However, confusion remains over just what a fund manager can and should reveal to a reporter. FINalternatives recently spoke with Mitch Ackles, who serves as global director and spokesman for The Hedge Fund Association, about the benefits of building a relationship with the media, and what a hedge fund manager should and should not discuss.


Hedge fund managers can discuss their economic and investment outlooks in the press, but they must do so carefully. Managers can discuss biographical details and even political views, though it’s best for non-compliance reasons to avoid the latter. In a public forum, hedge fund managers cannot talk about their track record, mention specific positions within their fund, make investment recommendations, or openly solicit investments. Obviously, legal opinions about this differ and I am not a lawyer, so be sure to consult legal and compliance counsel before making any statements to the press.


The relationship between the media and hedge funds has been loosening up for the past decade. As more publications begin covering hedge funds or ramp up their existing coverage of the industry in an attempt to give the public a look into this once-shadowy corner of the financial services industry, hedge fund managers are realizing that they have to join the conversation and try to shape it, or else they will have their world shaped by it.
Moreover, the media has a better understanding of the hedge fund industry today. While hedge fund blowups will make headlines, bad news is no longer the main topic. News outlets regularly call on hedge funds managers for their take on economic and market conditions. As hedge fund managers see the tone of coverage improving, they have been more eager to participate. Also, since hedge funds can’t advertise, managers see providing expert commentary to the media as a way to get their name out there and improve their reputation among their peers.


ISI’s index, based on a survey of 35 mostly U.S. hedge funds with about $84 billion under management, tracks net exposure on a zero through 100 scale. Readings of zero show “maximum” short selling, or the sale of borrowed equities with the hope of profiting by buying them at lower prices later, while 100 means “maximum” bullish bets. At 50, hedge funds are deploying a “normal” ratio of long to short investments.
“It is unusual for hedge funds in our survey to remain as cautious on net exposure as they have, given the size of the move in stocks since the summer,” Oscar Sloterbeck, managing director at New York-based ISI, said in an e-mail on Jan. 6.
Hedge funds have reason to be cautious as the euro-zone debt crisis and the U.S. budget debate threaten global economic growth, according to Steve Shafer, chief investment officer at Covenant Global Investors.
“It’s very sensible to have this low level of exposure,” Shafer, who helps manage $315 million at the Oklahoma City-based hedge fund, said in a phone interview yesterday. “The problem is that the low exposure creates the potential for whipsaw, which hurt of lot of hedge funds last year. You get pounded in September and then you miss out on October.”


The S&P 500 rose 1.6 percent to 1,277.81 last week, its second-best start of a year since 2006, as reports on manufacturing from America to China bolstered optimism about the global economy. It added 0.2 percent to 1,280.7 yesterday. Futures on the S&P 500 advanced 0.9 percent at 6:03 a.m. in New York today.
Buying of equities by hedge funds that have missed out on gains amid an improving economy and record corporate earnings may help propel stock prices this year, said Tim Hartzell of Houston-based Sequent Asset Management.
“The hedge funds are risk takers and they need to come back,” Hartzell, who oversees about $350 million as chief investment officer at Sequent, said in a phone interview Jan. 6.