Why October is a scary month for hedge funds

Not because of Halloween, but a ghoulish combination of central bank noises, retail buying of credit risk and Refco.

October is likely to prove a terrible month for hedge fund managers across asset classes because of sudden changes in the way various risks correlate, says William Reeves, principal at UK-based BlueCrest Capital Management, an alternative investment platform partly owned by Man Group. Reeves manages the firm's flagship relative-value fixed income fund, a low-return, low-volatility product popular with many institutional investors, and believes the Street's misunderstanding of correlation risk is setting investors up for losses.

Reeves does not set out return targets, but volatility targets, with the flagship fund aiming for a low, 4% annualized volatility target by making lots of niche bets across the bond universe. BlueCrest...

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