Word: funds
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Still, despite the big losses, hedge funds have fared relatively well compared with the overall market. The average hedge fund was down 10.3% through the end of September, according to Hennesse. That compares with a drop of 21% for the S&P 500 in the same time period. Many large mutual funds like Fidelity's Magellan are off even more...
...what makes the hedge-fund losses notable is the outsize fees that many investors are willing to pay in the belief that these funds will do well in good times and bad. That's where the name "hedge" comes from. Indeed, by some measures, hedge funds as a group have never had a down year before...
...Hedge funds typically charge investors 1% of their money each year, as well as a performance fee of 20% of the fund's annual gains. That can be a lot of money. For example, the average hedge fund rose nearly 12% last year. That means someone who invested $1 million - often the minimum - in an average hedge fund last year would have made $120,000 but would have paid back $34,000 in management fees...
...order to deal with nervous investors and the unpredictable markets, many hedge funds have recently gotten a lot more conservative. David Kostin, an analyst at Goldman Sachs, estimates that hedge funds have moved as much as $400 billion of their assets into cash. Cohen's SAC Capital, which is down 9% this year, has reportedly put half its fund, or $7 billion, in cash. The move to cash makes sense, says Gradante, for the current market. But it may hurt funds over the long haul. "If stocks rebound rapidly, like they did on Monday," says Gradante, "these funds will continue...
...credit crisis has had a chilling effect on economies around the world, and the International Monetary Fund (IMF) expects global growth to drop off sharply for the rest of this year and next as a result. The situation is particularly critical in Europe, where national economies were slowing markedly even before the financial crisis exploded. Most economic statistics in the U.K. and around the Continent already look awful, but the turmoil of the last few weeks will likely make the downturn longer and more painful. "You name it, it's falling," says George Buckley, a London-based economist for Deutsche...