Lone Pine Capital, the $8bn (€5.6bn) hedge fund manager run by one of the industry’s most successful stock pickers, has posted an 11% decline in returns for its main fund during September—likely the worst month on record for hedge fund performance industry-wide.
The performance of main fund Lone Cypress reflected the four weeks through September 26. Returns for Lone Cypress were down 24% for the year through September, according to the document.
Mandel’s Lone Cedar fund had made an average of just under 25% a year, net of fees, since its launch in December 1997, according to investors. The annual volatility of its returns over that period has been just under 12% per year. This is a better performance than almost any other long/short equity hedge fund.
An investor in hedge funds said about Mandel: “He is one of the brighter people around.”
Mandel previously served as a senior managing director with Tiger Management, the hedge fund manager known for its stock-picking expertise cultivated by founder Julian Robertson.
Lone Pine, based in Greenwich, Conn., focuses mainly on stock investment at a time when the S&P 500 has fallen more than 20% for the year to date. Market volatility spiked on Monday when the Dow Jones Industrial Average fell 7%, the most in a single day.
A spokeswoman for Lone Pine Capital said the company does not respond to press queries.
Lone Pine is just one of many hedge fund managers suffering a downturn in performance stemming from the liquidity crisis.
Losses also hit Maverick Capital, a Dallas-based long-short equity fund manager founded by Lee Ainslie, another former Tiger Management director.
The Maverick Fund declined an estimated 16% for the month through September 26 and the Maverick Levered fund fell 30% for the same period, according to documents from a source familiar with the fund.
The Maverick Fund fell 18% for the nine months through September and the Maverick Levered fund was down an estimated 36% for the same period.
Ainslie declined to comment.
A temporary ban on short selling has also affected hedge funds.
The Securities and Exchange Commission imposed the ban last month on companies in the financial sector following a steep drop in their share prices, which may have pushed some into bankruptcy such as Lehman Brothers, and spurred government rescues for insurer American International Group and mortgage lenders Fannie Mae and Freddie Mac.
In addition, the sudden transformation of Goldman Sachs and Morgan Stanley from investment banks into commercial banks and the level of the market downturn took the hedge fund industry by surprise, according to a fund of hedge funds manager.
The manager said: “It’s really bad. Almost everything is imploding… Not many hedge funds are making money."
The manager added that hedge fund managers have focused on raising cash to offset anticipated redemptions by investors. Funds of hedge funds are doing the same.
One hedge fund manager and short seller, John Paulson, defied industry trends with strong gains across his hedge funds this year. Paulson's hedge funds had returns of over 19% for the year through August.
A fund of hedge funds manager said if the two-week-old ban is allowed to expire on Thursday, Oct. 2, it would give back hedge fund managers the "most important tool in their toolbox."
The manager said: "No one knows what will really happen. If the market stabilizes and recovers, and if the short-selling ban is lifted, then there will be much fewer redemptions."
Ken Heinz, Hedge Fund Research president, said 7% to 10% of hedge funds could liquidate this year.
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