A Merciless May for Many Hedge Funds

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May was a painful month for many hedge funds, as the market struggled with the double whammy of a slowing economy and the final throes of the Fed’s current quantitative easing program.

In the macro space, where funds trade everything from currencies to stocks, the damage was widespread. Moore, Caxton, and Fortress, all multibillion-dollar global players, each saw declines of at least a few percentage points in their flagship macro funds, according to hedge-fund reports and people familiar with the matter.

As of late May, the Moore Global Investment Fund was down about 3%, the Fortress Macro Fund down about 2.5%, and Caxton Global Investment down about 2.4%, according to the reports and these people. Macro-fund managers and hedge-fund analysts say that many macro funds weren’t believers in either the U.S. stock rally or the euro’s strength, both of which turned in to missed opportunities, and that at the same time, there was little consensus about where to make profitable trades beyond shorting the U.S. dollar and going long gold.

The event-driven space, where portfolio managers bet on things like merger announcements or new economic policies, was equally challenged.

Paulson & Co.’s flagship Advantage fund was down nearly 6% for the month, according to people familiar with the matter, and in Europe, the Edoma Global Event Driven fund, opened last year by former Goldman Sachs prop trader Pierre-Henri Flamand, was essentially flat, according to a hedge-fund report.

Within the broader context, long-short equities funds have done relatively well, according to reports and people familiar with their returns. The flagship fund at Steve Cohen’s SAC Capital -- despite the legal issues swirling around the firm—was slightly up in May, according to people familiar with the matter, and is up 9% year to date.

Two key funds at Daniel Loeb’s Third Point, the Ultra and Offshore funds, languished in May, according to a hedge-fund report that said they were essentially flat, but are up a respective 13% and 10% year-to-date, making them two of the strongest performers for 2011 so far.

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