Big-name managers led a rebound in the performance of European hedge funds in October as financial markets rallied, but many funds saw only meagre gains after cutting their bets this summer and now face the prospect of a second year of losses in the last four.
Managers such as Crispin Odey and Michael Hintze clocked up hefty gains as financial markets rallied on hopes that euro zone leaders would at last get to grips with their debt crisis.
One of the top performers was Horseman Capital's Global fund, which rose 18.5 percent in October, taking year-to-date gains to 6.89 percent, thanks to bets on the luxury brands, luxury retailers, luxury autos and Chinese bank sectors.
The once high-profile fund, which has shrunk in size from $2.8 billion (1.7 billion pounds) in assets to $143 million after fund manager John Horseman stepped down in 2009, is now managed by Russell Clark.
Odey Asset Management, one of Europe's biggest hedge fund firms, saw its European fund, run by founder Crispin Odey, gain 9.1 percent in October, according to Thomson Reuters Lipper data.
The gains mean the fund, which has performed strongly in recent years but which has suffered this year as Odey's bullish stance on stocks has been hit by falling markets, is now down around 15 percent this year.
Meanwhile, CQS Directional Opportunities, a roughly $1.3 billion multi-strategy fund run by CQS's Australian founder Michael Hintze's, soared 13.8 percent during the month.
However, returns across the industry were muted after many funds cut back their positions earlier this summer to avoid suffering further losses.
For the indices it was a rampant month on low volumes, said Tim Gascoigne, global head of portfolio management at HSBC Alternative Investments Limited.
(But) equity long-short managers had reined in risk dramatically earlier in the summer and didn't partake (much in the rally).
In the U.S., for instance, Thirdpoint's high-profile manager Daniel Loeb said he was too cautious in October.
According to Hedge Fund Research's HFRX index, the average hedge fund globally gained 0.8 percent in October, leaving it down 7.7 percent for the year after a volatile summer that has damaged performance across the industry.
Britain's blue-chip FTSE 100 <.FTSE> index, in contrast, was up 8.1 percent over the month.
Managers ... have been running fairly conservative strategies over the quarter and saving their cash to allocate when the outlook is clearer, said Roberto Botero, director at Sciens Capital Management, which runs $3.7 billion in hedge fund assets.
Nevertheless, some funds enjoyed beter returns in October.
John Armitage's $3.5 billion Egerton European equity fund was up roughly 4.1 percent in October after its net long position allowed it to benefit from the market rally and many of its core holdings posted strong third-quarter earnings numbers, said a source who has seen the fund's performance.
Meanwhile, Polygon's Convertibles fund, managed by Mike Humphries, gained 2.27 percent in October, taking year-to-date gains to 11.61 percent, a source familiar with the matter said.
Paris-based Bernheim, Dreyfus and Co's event-driven Diva Synergy Enhanced rose 2.37 percent in its euro share class, paring year-to-date losses to 7.42 percent.
(Additional reporting by Tommy Wilkes; Editing by Sinead Cruise and Greg Mahlich)