2008: An Investment Odyssey
2008 is a year that will be forever etched in investor’s memories. Some of the major events included the bursting of the residential real estate bubble, the shoring up of major financial institutions with TARP funds, and the FDIC take-over of weak and failing institutions. Because these cataclysmic events continue to send aftershocks throughout the financial system two years later, 2008 is still very much on investors’ minds.
Given this, the few select funds that were able to successfully navigate the “black swans” of 2008 are on track to benefit, because fund manager performance in 2008 has become a benchmark for hedge fund investors. In terms of manager assessment and evaluation, 2008 has become an important year in a hedge fund’s life.
If a fund was positive in 2008, investors are quick to take notice. I’ve heard from a handful of institutional investors that today, they have three main criteria when evaluating funds: performance in 2008, strategy, and liquidity. This is in stark contrast to 2007 when investors required a specific pedigree and returns of 20 percent or more. Now, investors are more focused on risk management, downside protection, and capital protection. How a manager performed in 2008 is a quick way for investors to narrow their fund manager universe.
Considering that in 2008 the S&P 500 index returned –33.99 percent and the MSCI World Index returned –40.33 percent, if a fund manager’s returns were even half of those two commonly used benchmarks, then the fund manager will have much greater odds of landing on an investor watch list. If a fund had positive performance in 2008 and followed it with positive performance in 2009, the managers should expect increased conversations with investors for the remainder of 2010 and into 2011.