The Market Correction To Come -
Historical Performance Of Hedge Funds In Down Markets
November 2, 2009 - New York, NY - Hennessee Group LLC, an adviser to hedge fund investors, addresses
the rising concern among investors that the financial markets are due for a near term correction in light of the
widespread gains experienced in recent months. Charles Gradante, Co-Founder of the Hennessee Group,
stated "With the equity markets up over +50% since the lows reached in early March, and ongoing
uncertainty regarding the true health of the global economy, we are fielding more and more questions
regarding the sustainability of the current market rally and what are our expectations are for hedge
funds in a market correction."
Historical Hedge Fund Drawdowns A Fraction Of Equity Markets
The Hennessee Group recently conducted a brief study comparing the performance of the Hennessee Hedge
Fund Index relative to the performance of the S&P 500 Index dating back to 1993. The Hennessee Group
isolated the analysis to the fifteen largest monthly drawdowns in the S&P 500 Index and measured the
downside protection provided by hedge funds using the Hennessee Hedge Fund Index as a proxy. As
illustrated in the chart below, hedge funds managed to outperform the S&P 500 Index all fifteen months
and generated over +100% in outperformance during these periods of panic. Gradante stated, "Hedge
funds participated in only about one third of the market downturn which is due, in large part, to their
ability to hedge their portfolios and maintain reduced market exposures. In addition, hedge funds
generated a -2.67% average monthly loss over these 15 months while the S&P 500 generated an
average monthly loss of -9.38%." Gradante added, "We would expect to see similar results going forward,
particularly given the cautious stance of most hedge funds today as uncertainty and nervousness continues to
overhang the financial markets and economy."
Conclusion
Hedge funds are on track for one of their best years since the Hennessee Group started monitoring
performance since 1987. The Hennessee Hedge Fund Index is up +20.9% through September relative to
the +17.0% gain for the S&P 500 Index. Consistent with longer term results, hedge funds managed to
protect capital during the market sell-off in early 2009 and have participated in a good portion of the market
rally since March. In addition to strong performance, the Hennessee Group is encouraged by the
slowdown in redemptions which is restoring stability to hedge fund organizations and allowing them to
once again focus on alpha generation for investors. As investors take note of these positive developments
we expect to see renewed interest and growth for the hedge fund industry in the coming years.
For further information contact:
Hennessee Group LLC
212-857-4400
www.hennesseegroup.com
* For a more in depth monthly review of the economy, capital markets, and hedge fund performance and strategies, the Hennessee Group offers the monthly Hennessee Hedge Fund Review (www.hennesseegroup.com/hhfr/).
About the Hennessee Group LLC
Hennessee Group LLC is a Registered Investment Adviser that consults direct investors in hedge funds on asset allocation, manager selection, and ongoing
monitoring of hedge fund managers. Hennessee Group LLC is not a tracker of hedge funds. The Hennessee Hedge Fund Indices® are for the sole purpose of
benchmarking individual hedge fund manager performance. The Hennessee Group does not sell a hedge fund-of-funds product nor does it market individual hedge
fund managers. For additional Hennessee Group Press Releases, please visit the Hennessee Group's website. The Hennessee Group also publishes the Hennessee
Hedge Fund Review monthly, which provides a comprehensive hedge fund performance review, statistics, and market analysis; all of which is value added to
hedge fund managers and investors alike.
Description of Hennessee Hedge Fund Indices®
The Hennessee Hedge Fund Indices® are calculated from performance data reported to the Hennessee Group by a diversified group of over 1,000 hedge funds. The
Hennessee Hedge Fund Index is an equally weighted average of the funds in the Hennessee Hedge Fund Indices®. The funds in the Hennessee Hedge Fund Index
are derived from the Hennessee Group's database of over 3,500 hedge funds and are net of fees and unaudited. Past performance is no guarantee of future returns.
ALL RIGHTS RESERVED. This material is for general information only and is not an offer or solicitation to buy or sell any security including any interest in a
hedge fund.
