BOSTON -- Hedge fund investors will soon see just how bad the month of July really was when thousands of managers report performance data, and industry experts are warning disasters may loom where people least expect them.
"The numbers are going to be all over the place," said Jack Yang, a partner at $40 billion hedge fund Highland Capital, which specializes in fixed income strategies.
Highland hastily assured investors that all is well with its bets after people confused the fund's name with a similarly titled separate fund and rumors of heavy losses surfaced.
Talk that Bruce Kovner's Caxton Associates was on the brink of blowing up had to be extinguished with a rare public letter that acknowledged small losses in July but stressed the firm is still in the black.
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While pension funds, endowments and rich investors are bracing for heavy losses at funds that specialize in credit strategies, they may be surprised by equally big declines in equity funds and even funds of funds that promise to select portfolios that seek to spread the risk, managers warned.
"The canary in the coal mine is going to be the fund of funds because they put their money everywhere," said Sol Waksman, who invests in hedge funds and tracks their performance at the Barclay Group.
"The people who were short did well, but then there were those people who did not short," Highland's Yang said, noting that many equity hedge fund managers may have been lulled into a false sense of security by rising markets in recent weeks.
Through June the average hedge fund was up 8 percent, according to Hedge Fund Research, one of the industry's most widely respected data trackers.
July will be different, managers and investors agree.
And August could be worse yet.
"Our fear is that there are more disasters out there. We are not done yet," said Michael Travaglini, executive director of the $50 billion Massachusetts state pension fund that lost millions of dollars in collapsed hedge fund Sowood Capital.
"Right now we are calling all of our funds of funds and are having tough conversations with them," he added.
Traditionally performance trackers can estimate hedge fund industry numbers for the previous month in the first week of the following month.
This time it is taking longer as people are double checking everything. "It is too early to tell, but one bad sign is that we already have a larger number of funds reporting negative returns than we usually do," Barclays Waksman said.
Indeed investors have good reason to fret after Boston-based Sowood Capital told investors like the Massachusetts fund that a 57 percent loss in July wiped out half of its $3 billion in capital.
Also investors heard Paul Tudor Jones' well-respected Raptor fund lost 9 percent loss in July, chipping away at the year's gains. SAC Capital, the $14 billion fund, slipped 1 percent last month but is up 14 percent for the year, an investor in that fund said.
And rumors of bigger double-digit losses are cropping up every hour, industry analysts said.
"There certainly is a tendency for poorer performing funds to report later in the month," Barclay's Waksman said.
The overall industry numbers may also be distorted slightly because certain funds, including Sowood, report to no one. That would eliminate some drag on the numbers, analysts agreed.
On the other hand strong performance at other funds that were on the other side of bets on mortgages to people with risky credit histories fared well and that might limit the bloodletting. An investor in $7 billion Pequot Capital said the fund was up 9 percent in July, putting up 21 percent for the year.
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