Hedge fund returns are expected to improve in 2005, after a tough year in 2004, according to the Hennessee Group, a hedge fund research cons...

Hedge fund returns are expected to improve in 2005, after a tough year in 2004, according to the Hennessee Group, a hedge fund research consultancy. Hennessee believes that most market participants expect relative performance for long/short equity strategies to improve in 2005 and achieve returns of 8 per cent to 10 per cent, as higher interest rates (in the US) and lower levels of liquidity are met with lower GDP growth and slower corporate earnings growth. This should create a more favourable environment for stock picking and short selling, says Hennessee. The Hennessee Long/Short Equity Index gained 8.4 per cent in 2004, and while last year was more favourable for short sellers than 2003, most managers’ profits suffered in the short side due to the strong fourth quarter for the equity market.