Hedge Fund Trend

By Goldman Sachs

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The great reduction: Net exposure falls to 17% from 47% last year

We analyze 705 hedge funds with $607 billion of long equity assets, 31% lower than last quarter, and $513 billion of short positions. “Great reduction” refers to the industry’s smaller asset base and lower net exposure. Financials account for the largest gross exposure but is also the only sector where funds are net short. Largest net exposure is to Health Care.

Reduced net exposure amid turbulent market and tightening credit Hedge funds appear to have net long exposure of just 17% compared with 47% one year ago, signaling increased risk aversion. Lower net exposure to the equity market suggests hedge funds may have returned closer to their roots as “hedged” investors, less dependent on market direction to poduce returns, and migrated away from the levered long strategies that any funds pursued during the upward trending market of 2002-06.

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