It’s been a rough stretch for the 2 and 20 crowd. Everyone from Bill Ackman to David Einhorn to (gasp) the zen master himself, Ray Dalio has been seemingly unable to cope with markets that are increasingly volatile, correlated, and impossible to explain. Indeed many of the industry’s “rock stars” have massively underperformed of late. As it turns out, “hedge” funds aren’t so good at “hedging” after all. Rather, they’re simply adept at riding the CB put with massive leverage. But when everything fell apart in August, in a harrowing bout of flash crashing madness on Black Monday, no one was safe, not even risk parity. Subsequent idiosyncratic shocks (e.g. Valeant for Ackman) only added to the malaise and before you knew it, the rout was on.

The apparent lesson: just buy the SPY for 11 bps. In any event, the trend continued in February, a month in which hedge funds saw their biggest underperformance relative to the market since 2007.

What happened to make February so bad you ask? Well, according to Credit Suisse, “short-covering in Materials, Industrials and Energy, hurt both their longs AND shorts.”

Worse, they apparently missed the bounce. “Long/Short funds have not re-risked despite this rally, with gross exposure pinned at 2011 lows.”

In other words:


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