Some Hedge Funds Get a Trim on Returns ---- John R. Dorfman
NEW YORK -- Some of the best long-term records in the investment business belong to hedge fund managers, the gunslingers of Wall Street. But this year only a few are beating the market, and a fair number are losing money.</br></br>Hedge fund managers play both sides of the investment street. Catering to pension funds and wealthy individuals, the hedge funds "go long," buying stocks as conventional money managers do. They also "go short," making bets that certain stocks will decline.</br></br>It's a two-pronged approach rarely seen in the mutual fund arena, the small investor's domain. And it's no sure thing. Although the strategy is supposed to help hedge against the risk of a big market move in either direction, many of these "smart money" funds lately have been taking a lot of lumps.</br></br>Pure short-sellers are having a dreadful year, with the major stock-market averages up roughly 13%. Many heavily shorted stocks, far from declining, have risen 20% or more. Hedge fund managers aren't immune to the carnage. "I'm more long than short, but my shorts are killing me," says Walter Kass, who runs CK Partners, a New York hedge fund.</br></br>Managing to sidestep the damage were the hedge funds that either stayed mainly long or deployed exotic investment strategies. Essex Performance Fund was up about 20% in January and February, using a blend of 145% long and 25% short. (The total adds up to more than 100% because the fund borrows money in addition to what the clients put in.) "Some of it was luck," says Stephen D. Cutler, president of Essex Investment Management, the fund's parent. "We got in quite a bit of money at year-end 1990" and decided to put it to work on the long side.