Hedge fund hitters underperform—in a big way

For some large U.S. hedge funds, October may be replacing April as the proverbial cruelest month.

Last month brought an 8.4 percent rally in the S&P, the best performance for that and other major indexes since 2011. Yet while average hedge-fund performance figures haven't yet been tabulated, anecdotal evidence suggests that some major money managers struggled to even come close to those levels.

Through Oct. 27, Pershing Square, the long-short hedge fund managed by Bill Ackman, had fallen 3.8 percent for the month, according to its website, and was down 15.9 percent this year. Through Oct. 26, Glenview Capital, the health care-oriented fund run by Larry Robbins, was down 7.3 percent for the month and 20.25 percent for the year, according to an investor letter, prompting Robbins to show remorse for a period that in which "I've failed to protect your capital, and mine." In an effort to rebuild investor goodwill, Robbins is offering to "work for free to recover the losses I created for you" by initiating a new, fee-free investment product that focuses on more easily-traded stocks.

Other key funds had flat or upside performance for October, but still fell shy of the broad market — and remained in lackluster territory. Greenlight Capital, David Einhorn's long-short stock fund, managed 0.7 percent returns for October, but remained 16.3 percent in the red for the year. Dan Loeb's Third Point Offshore fund did better, rising 4.7 percent in October but staying flat for the year through then. Even Citadel's flagship Wellington fund, which is up an impressive 12.15 percent for the year, was flat for the month.

Some hedge-fund managers remain optimistic, while acknowledging that their clients may be disappointed with this year's showing. In a late-October letter to investors, for instance, Einhorn spoke of re-examining his losing positions and electing to reduce Greenlight's gross exposure, covering some short, or bearish positions, and "modestly" increasing the firm's net long positions. The fund continues to see future upside in some of its more battered holdings, including Consol and SunEdison, Einhorn wrote.

Loeb, however, went the opposite direction, saying in an Oct. 30 letter that the short-selling environment was full of opportunity and that Third Point has "more single short names than long positions in our book today." While Loeb said he he does not see another U.S. recession as imminent, the market will remain volatile and stock valuations will be curtailed.