Hedge funds that bet on corporate shake-ups have been the industry's darlings.
The average "event driven" fund clocked in gains virtually every month for the past year and investors poured in tens of billions of dollars into money managers who promised continued profits. A subset, so-called activist managers who actively push for change versus just predict it—like Bill Ackman of Pershing Square Capital Management and Nelson Peltz of Trian Fund Management—produced large gains for investors by practicing their signature public battles with management teams.
Then came July, when U.S. equity markets gave back some of their gains. The average event driven manager lost 0.85 percent for the month, the worst performing hedge fund strategy measured by data provider Preqin. It was also the first monthly loss for event driven strategies since August 2013.
Dan Loeb's Third Point Offshore fund fell 1.2 percent in July, likely on losses in public portfolio holdings like Sotheby's and AIG. John Paulson's Paulson Advantage lost 4.49 percent for the month in part because of positions in companies that had just reorganized and the health-care industry, according to a letter to investors. And Mick McGuire's Marcato International dropped 2.4 percent because of losses in public positions in NCR Corp. and Life Time Fitness, according to a person familiar with the situation.
But investors are far from panicked and continue to believe in a strong environment for profiting off company mergers, reorganizations and other moves.