Dow Jones Credit Suisse Hedge Fund Index - November

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The Dow Jones Credit Suisse Hedge Fund Index finished down 0.79% in November. Their new monthly commentary offers insight into hedge fund performance through the month of November, including an overview of November hedge fund performance, in-depth commentary on individual hedge fund sectors and hedge fund return dispersion statistics for each strategy.

Some key findings from the report include:


 On a year-to-date basis through November, six out of 10 strategies were in positive territory. In total, the industry saw estimated outflows of approximately $4 billion in November, bringing overall assets under management for the industry to approximately $1.7 trillion;

 Directional strategies, such as Long/Short Equity, experienced intra-month volatility related primarily to macroeconomic factors. The rally during the last week of November benefitted broader markets more than many Long/Short equity funds which continued to maintain a defensive bias;

 Tactical trading managers showed generally flat performance. Global Macro managers posted slightly negative performance while Managed Futures funds posted slight gains as managers held onto positive performance gained during the first three weeks of the month; and

 On the relative value front, managers showed mixed performance in November. Fixed Income Arbitrage managers posted slight gains despite the increased volatility in the fixed income markets, while Convertible Arbitrage and Multi-Strategy managers experienced overall losses.

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Hedge fund share restrictions favor managers over investors

Managers' actions raise conflict-of-interest questions for some hedge funds, new study finds

Armed with insider knowledge, managers of share-restricted hedge funds sell off their own holdings ahead of their investors in order to avoid low returns produced by an outflow of shareholder dollars, according to a new study by researchers from Boston College and EDHEC Business School in France.

The practice, known as front running, pits the interests of managers against those of investors in hedge funds where shareholder actions are limited by contract and there is scant disclosure of fund details. Managers act in advance on the information they possess, and can pass it along to preferred clients to shield them from declining returns, which the researchers say can be predicted by the flow of funds.

Analyzing rarely-seen data from the privately held funds, Boston College Professor of Finance Ronnie Sadka and EDHEC researcher Gideon Ozik identified 56 events where managers reduced their holdings, actions that were subsequently followed by a significant out flow of other investors' money. Further studying a larger sample of thousands of funds, the researchers conservatively estimated that managers in the hedge fund industry could have effectively sheltered approximately $2.4 billion dollars from reduced returns that Sadka and Ozik say are directly linked to the withdrawal of investor dollars from a hedge fund.

The findings follow a number of high profile cases in recent years that spotlight managers of the multi-billion dollar funds who shielded their own holdings from losses or tipped off preferred clients in advance of an investor's departure from a fund. Earlier this month, billionaire hedge-fund manager Philip Falcone's Harbinger Capital Partners was accused of providing preferential treatment to Goldman Sachs and other investors.

"The evidence suggests that private information about a fund, not only about the fundamental value of its assets, may constitute material information," report Sadka and Ozik. "Such private information engenders potential conflict of interest between fund managers and investors, with implications for proper fund governance and disclosure policy concerning managerial actions."

In share-restricted hedge funds, investors' actions are limited in order to protect the common interests of all investors in a fund. The restrictions, such as lockup periods or redemption-notice periods, provide an incentive to retain assets in a fund, allow managers to slowly acquire or sell positions and reduce the impact of trading-induced price pressures.

But these share restrictions produce a lopsided exchange of information between managers and their clients about future fund flows, said Sadka.

"We found that flow predicts returns, so the fund manager who receives the three- or six-months notice an investor plans to withdraw their stake possesses an information advantage on which they can act or communicate to other clients," said Sadka. "The fund manager can pull his or her stake out of the fund, or allow other investors out of the fund. The investor who is not informed is left out in the cold."

Focusing on share-restricted hedge funds between 1999 and 2008, Sadka and Ozik found that funds with recent inflows on average earned an additional 5.6 percent annually compared to funds that experienced outflows. No such return spread was observed for funds with fewer share restrictions. So regardless of the fund's assets or strategic approach, the basic knowledge about the flow of funds offers powerful incentive for both managers and investors in share-restricted funds to sell shares, the co-authors report.

Contrary to mutual funds, where investors can remove funds at any time and other investors can see changes in the net value of the fund, share-restricted hedge fund managers must receive several months advance notice before an investor can withdraw. That provides managers with opportunity to withdraw their own stake in advance of the outflow of funds.

"This raises a lot of issues about incentives and information," said Sadka. "All of a sudden, not all investors are equal in a fund. Even information about a fund itself, whether money is flowing in or out, could be material information because that is a reliable predictor of returns."

Sadka and Ozik also compared the effect of managerial capital reductions on high-governance funds – typically audited, US-based funds that report to regulators – and low-governance funds, which are located offshore, do not report audit results or file with regulators. The added disclosure measures produced dramatically different responses by managers to the outflow of funds.

The researchers found that outflows following managerial capital reductions were larger among low-governance funds, reaching a rate of about 18 percent within a year, while the outflow rate hovered at approximately 6 percent for high-governance funds.

To counter these findings, Sadka said hedge-fund managers should disclose their intention to subscribe to or redeem shares from the funds they manage to avoid the appearance of front-running their lesser-informed investors. In addition, imposing tighter share restrictions on managers and insiders should be considered. Finally, in light of these findings, managers and investors should consider that private information about a fund – not just fundamental asset values – may constitute material information.

Emerging Hedge Fund Managers Expect to Post Double-Digit Returns in 2012

GAIM USA Annual Survey of Emerging Hedge Fund Managers Finds 40% Hope to Raise $50 Million or More in New Capital

Emerging managers expect their hedge funds to achieve gains of 10% or more in 2012, according to the GAIM USA Survey of Emerging Hedge Fund Managers. The survey of 90 emerging managers (defined as having $250 million or less in assets under management) found that 61% of the managers expect their portfolios to earn more than 10%, net of fees, while 31% of them expect to earn 15% or more.

GAIM USA, one of the world’s leading organizers of alternative investment conferences, also found that while emerging managers overwhelmingly (81%) cited “raising assets” as their biggest challenge, 40% of said that they expect to raise more than $50 million in new capital in 2012. If successful, that would mean a doubling of assets under management for the smallest funds in the survey, and a 20% increase for the largest ones. The task of raising those assets will fall heavily on marketers outsourced by the emerging managers. When asked which activities they were looking for external partners or vendors, 41% listed marketing, followed by prime brokerage (37%) and compliance (30%).

“The survey tells us that emerging managers are almost by definition brimming with self-confidence” said Amanda Rodrigues-Cheung, GAIM USA Event Director. “Obviously, they have to think that they can outperform the markets, or they would not launch their funds.”

GAIM USA conducted its survey of emerging managers in early December 2011 in advance of the GAIM USA Hedge Fund Conference in Boca Raton in January 2012. Full results will be released at the conference. The survey was conducted to take the pulse of this subset of the hedge fund industry which, on the one hand, has found it difficult since 2008 to raise capital and, on the other hand, is receiving increased attention from investors who think smaller, more nimble funds are more likely to outperform their larger peers.

The 2012 GAIM USA program offers emerging managers several platforms to help them grow and expand their business. The Quickfire Showcase, Alpha Platform and GAIM CONNECT, which goes live online one month before the event, each present a tailored opportunity to describe smaller funds’ investment strategies and put them on the radar of potential investors. Plus, GAIM MATCH will actually set up meetings for emerging managers with investors who have expressed a desire to meet with smaller funds.

This year, key sessions will be dedicated specifically to the opportunities and challenges of investing in smaller and emerging managers and feature top investors. Representatives of LARCH LANE ADVISORS, JP MORGAN, UBP ASSET MANAGEMENT and FUND EVALUATION GROUP will participate in the panel entitled “Managing the investment selection and business risk of allocating to smaller managers.”

GUGGENHEIM PARTNERS, AKSIA, CAMBRIDGE ASSOCIATES, GOLDMAN SACHS ALTERNATIVE INVESTMENTS panelists will discuss “The new paradigm for operational due diligence” and “Meet the Seeders & Providers of First Capital” will feature no fewer than five seeders discussing the best ways to get on their radar screens and the types of opportunities on which they are currently focused.

ABOUT GAIM (Global Alternative Investment Management)

GAIM is one of the world's most powerful brands in the investment conference business. With events in the US, Europe and Asia, GAIM has gained global renown in the alternative investment industry for its success in bringing together leading experts in finance, geopolitics, investing, and economics for a timely exchange of ideas and valuable insights about investment management. Participants, including some of the most recognizable names in the hedge fund industry have unusual access to panelists and an unsurpassed opportunity to make new relationships and strengthen existing networks. GAIM is a brand of Informa PLC.

The Dow Jones Credit Suisse Core Hedge Fund Index Down 0.95% in November

The Dow Jones Credit Suisse Core Hedge Fund Index was down 0.95% in November as a majority of component strategies declined.

Early estimates indicate the Dow Jones Credit Suisse Hedge Fund Index (“Broad Index”) finished down 0.75% in November (based on 80% of assets in the index reporting).

The Dow Jones Credit Suisse Core Hedge Fund Index provides the benefit of daily published index values which enable investors to track the impact of market events on the hedge fund industry. November, October and year-to-date 2011 performances are listed below and are available at www.hedgeindex.com.

Index


Nov 11


Oct 11


2011 YTD

Dow Jones Credit Suisse Core Hedge Fund Index


-0.95%


1.85%


-7.03%

Convertible Arbitrage


-2.35%


-0.52%


-8.84%

Emerging Markets


-1.43%


1.73%


-2.56%

Event Driven


-0.76%


2.66%


-11.68%

Fixed Income Arbitrage


-0.87%


0.18%


-0.86%

Global Macro


-1.43%


1.84%


-10.43%

Long/Short Equity


-0.94%


5.27%


-5.27%

Managed Futures


0.52%


-5.07%


-4.69%

HEDGE FUND LAUNCHES FALL, LIQUIDATIONS RISE IN 3Q

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Despite quarterly decline, new launches on pace for best calendar year since 2007; Fund dispersion rises by 30 percent in volatile quarter

The number of new hedge funds launches declined, while the number of liquidations rose in the volatile 3Q11, as Macro considerations surrounding the European sovereign debt crisis continued to drive financial markets and the resolution of the crisis remained unclear.

According to the Market Microstructure Industry Report released today by HFR (Hedge Fund Research, Inc.), new hedge fund launches declined to 265 funds in 3Q11, a decline of 15 over the prior quarter but representing a modest increase over 3Q10.

Hedge fund liquidations rose to 213 funds, an increase of 22 over the prior quarter and 45 over 3Q10. The 3Q11 liquidation total represents the highest quarterly total since 1Q10, when 240 funds liquidated, while hedge fund launches remain on pace for their highest calendar year total since nearly 1,200 funds launched in 2007.

Hennessee: HEDGE FUNDS DECLINE -0.96% IN NOVEMBER

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Hennessee Group LLC, an adviser to hedge fund investors, announced today that the Hennessee Hedge Fund Index declined -0.96% in November (-3.91% YTD), while the S&P 500 decreased -0.51% (-0.85% YTD), the Dow Jones Industrial Average advanced +0.76% (+4.04% YTD), and the NASDAQ Composite Index fell -2.39% (-1.23% YTD). The Barclays Aggregate Bond Index lost -0.09% (+6.69% YTD) as bonds were mixed. Treasuries increased with the S&P/BG Cantor 7-10 Year Treasury Bond Index climbing +0.70% (+13.52%), while the Barclays High Yield Credit Bond Index fell -2.74% (+1.66% YTD).

“One hedge fund manager referred to November as a game of ‘macro roulette’ with major equity indices fluctuating wildly on news concerning the European sovereign debt crisis,” commented Charles Gradante, Co-Founder of Hennessee Group. “For most of the month, the markets were in ‘risk off’ mode, and global equity markets plunged. At one point, the S&P 500 was down over -9% for the month. The last few days of November saw a complete reversal and a rally in response to coordinated global easing and the hope for European stability, erasing the month’s losses. This environment has proven extremely challenging, and hedge funds were whipsawed again.”

“Hedge funds have been conservatively this year positioned due to elevated risks in the market. As a result, they have underperformed for the year,” commented Lee Hennessee, Managing Principal of Hennessee Group. "In recent weeks, hedge funds have increased net exposures marginally, but remain well hedged. They have consolidated into high conviction names and added macro level protection. Despite recent challenges, many are optimistic and want to remain flexible in order to take advantage of attractive investment opportunities once markets stabilize."

The Hennessee Long/Short Equity Index declined -0.45% (-2.94% YTD) in November. Hedge funds entered the month with conservative exposures and were positioned well to protect capital in a down market. Equity markets traded mostly lower during the month, dragged down by about the worsening European debt crisis. However, a strong three-day rally at month end, which saw the S&P 500 Index gain +7.69%, reversed the month’s losses. The best performing sectors during the month were consumer staples (+2.41%) and energy (+1.65%), while the worst performing sectors were financials (-5.02%) and information technology (-1.87%). Hedge funds underperformed the markets during the rally as short portfolios generated losses. In addition, several managers reported that long positions lagged as many names faced selling pressure ahead of year end. While managers remain cautious about the macro picture, managers are bullish on equities over the longer term. Companies have strong fundamentals and posted record earnings in the third quarter of 2011. Cash is at an all-time high, dividend payments are up, and cash flow is strong. However, over the shorter term, managers are cautious, as the investment environment has become extremely challenging. In the current environment, managers are well hedged in order to protect capital in case of a major ‘risk off’ move and with significant cash balances in order to be opportunistic once new investment opportunities present themselves.

“As many hedge fund managers anticipated, the ‘Super Committee’, which was tasked with creating a plan to reduce the U.S. deficit by November 23rd, did not deliver” commented Charles Gradante. “Both political parties appear to be digging in their heels and plan to make debt reduction a key issue in the 2012 election year. The result will be greater uncertainty for the markets, which will continue to serve as a headwind for equity markets.”

The Hennessee Arbitrage/Event Driven Index declined in November, falling -0.47% (-2.15% YTD) as risk assets declined and spreads widened. The Barclays Aggregate Bond Index fell, down -0.09% (+6.69% YTD). Treasuries were positive, as the S&P/BG Cantor 7-10 Year Treasury Bond Index advanced +0.70% (+13.52%). The Barclays High Yield Credit Bond Index declined -2.74% (+1.74% YTD). High yield credit spreads widened from 707 basis points to 779 basis points at month end. Managers state that spreads for high yield bonds and loans are cheap relative to default risk, though managers remain cautious as macro risks are extensive, volatility remains high, and interest rates are at historically low levels, justifying the higher than average spread. That said, this provides attractive security selection opportunities for credit focused hedge funds. The Hennessee Distressed Index declined -0.96% in November (-3.26% YTD). Default activity picked up to the highest level since November 2009 as American Airlines filed for bankruptcy. However, default rates remain low and are expected to remain low for the next couple years. Distressed managers suffered losses due to weakness in illiquid names and post reorganization equities, which lagged during the late month rally. The Hennessee Merger Arbitrage Index increased +0.13% in November (+0.00% YTD). Merger arbitrage funds were essentially flat for the month. Deal activity continues, and managers are actively putting capital to work. The volatility is providing trading opportunities as managers continue to focus on strategic deals. The Hennessee Convertible Arbitrage Index declined -0.29% (-0.88% YTD) in November. Convertible portfolios were down slightly due to wider credit spreads. Volume was light and valuations were little changed.

“While the U.S. economic data appears to be somewhat encouraging, European debt and economic worries will likely continue to weigh on investor confidence. Most managers expect very low GDP growth for the Eurozone next year and for several countries to contract,” commented Charles Gradante. “Austerity measures have already pushed some periphery countries into recession. Thus, the investment outlook remains negative. However, managers are optimistic that this will create compelling opportunities across several strategies, including event driven, distressed and macro.”

The Hennessee Global/Macro Index declined -2.77% in November (-8.01% YTD), driven by losses in global markets. International equities performed in line with U.S. stocks throughout November, though movements were amplified. The month was dominated by two key negative issues: U.S. and European debt and the slowing growth of European nations. Conditions dramatically approved on November 30, when central banks in the U.S., EU, Britain, Canada, Japan and Switzerland lowered the cost of U.S. dollar swaps by 50 basis points in order to increase global liquidity, resulting in a strong global rally in risk assets. Despite the month-end rally, the MSCI EAFE was down -4.85% for November (-11.30% YTD). The financial sector was the hardest hit due to its exposure to European sovereign debt. International hedge fund managers were negative, but outperformed as the Hennessee International Index fell only -0.71% (-5.63% YTD). The MSCI Emerging Markets Index lost -6.75% for the month, leaving it down -19.37% for the year. Managers suffered losses as equities fell due to concerns about slower growth. Key detractors included Brazil (-7.21%), India (-15.19%), and China (-8.46%). Hedge fund managers were down, but outperformed due to hedges, as the Hennessee Emerging Markets Index was down -3.60% (-12.06% YTD). The Hennessee Macro Index was down -1.12% in November (-2.23% YTD). Macro funds continue to post mixed performance, with some funds generating profits in gold, treasuries and the U.S. dollar, while others experiences losses due to currency, commodities and equity exposures. The U.S. Dollar Index increased +2.89% (-0.84% YTD), benefiting funds positioned with a “risk off” bias. Managers also generated gains long precious metals as gold closed the month at $1,751 per troy ounce. Treasuries advanced as interest rates decreased in November. The 10-year Treasury declined to 2.09% and the 30-year Treasury decreased to 3.07%. Outside of precious metals, commodity prices were mostly down.

November sees hedge funds outperform underlying markets by 2.6%

The Eurekahedge Hedge Fund Index was down 0.65%1 in November amid larger declines in global markets. Risk aversion remained high during the month with the Euro zone debt crisis continuing to dominate investor sentiment. Although the month started with gains in equity markets, mid-month trend reversals and a strong rally at month’s end made it a tough investment environment. The MSCI World Index2 witnessed losses of 3.22%.

Key highlights for November:

* CTA/managed futures hedge funds gained 0.71% in November

* The Mizuho-Eurekahedge Top 100 Index remained in the black November YTD; up 2.66%

* Early reports indicated net positive asset flows to hedge funds in November 2011

* Hedge funds outperformed underlying markets by 2.6% in November



Most regional indices finished the month in the red, with the exception of North American hedge funds which were flat to slightly positive. After the strong rallies in October, a number of North American managers had indicated low net exposures for November to protect gains from the previous month. This cautious positioning helped the managers during most of the month while the last day rally, driven by the surprise move by central banks to provide liquidity, had mixed results. The S&P 500 declined 0.51% during the month.

Among other regions, Latin American and European hedge funds fared better than their Asian counterparts, with returns of -0.27% and -0.48% respectively. Similar to North American hedge funds, European hedge funds maintained low net exposures through the month, helping managers to avoid significant losses in a highly volatile environment. Early sell-offs were triggered in the markets by the possibility of a Greek referendum. November witnessed some significant events such as changes in the Greek and Italian governments, and failure of the ‘super-committee’ to reach an agreement on budget cuts, which drove the market swings. The MSCI Europe Index3 was down 4.96%.


Strategy Indices

In terms of strategic mandates, most strategies were loss making for the month. The best performance was delivered by the Eurekahedge CTA/Managed Futures Hedge Fund Index – up 0.71%. Trend followers posted the largest gains, with FX trades (such as long dollar positions) yielding significant profits for the managers. Long exposures to the Hang Seng Index negated some of the profits however. Short-term systematic traders also finished the month with small gains on the back of short positions in bonds. Macro investing hedge funds made gains through short exposure commodities and posted a positive return of 0.17% for November. Among other strategies, hedge funds investing in riskier assets witnessed the largest losses; the Eurekahedge Distressed Debt Hedge Fund Index was down 1.75% while the Eurekahedge Long/Short Equities Index lost 1.77% during the month.

HFN Industry Performance Report - October 2011

The HFN Hedge Fund Aggregate Index was +2.37% in October and -3.61% YTD 2011 while the S&P 500 Total Return Index (S&P) was +10.93% during the month and +1.30% YTD. Equity market exposure was the primary positive performance driver in October. Credit strategies lagged, but were positive and commodity funds, primarily those with high exposure to FX markets brought down aggregate hedge fund returns. Total estimated hedge fund assets at the end of October 2011 were $2.484 trillion, an increase of 1.01%, or $25.0 billion from September.

Complete report

HFN Strategy Focus Report: Financials Sector

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Hedge funds investing in the financials sector have performed well relative to sector benchmarks with aggregate returns posting -3.99% year-to-date (YTD) and -0.40% in the last 12 months (LTM). This compares to the NYSE Financials Index with returns of -13.94% YTD and -10.03% LTM.

Investor interest in financials sector strategies has been below the hedge fund industry average for 2011. Funds have had an estimated net outflow of $610 million in 2011, or 3.59% of total AUM vs. 2.21% growth for the hedge fund industry. Performance accounted for an additional $440 million decline in assets for the year.


Complete report

The average hedge fund investor earned about 6 percent annually from 1980 to 2008

From the New York Times today:

The average hedge fund investor earned about 6 percent annually from 1980 to 2008 — a hair above the 5.6 percent return they would have made just holding Treasury securities, according to a study published this year in The Journal of Financial Economics.

So why would large investors pay hedge funds billions of dollars in fees over the years for those returns? The answer highlights the financial problems at the country’s largest pensions.

As waves of workers prepare to retire, pensions find themselves in a race against time. Short of what they need by an estimated $1 trillion, according to the Pew Center on the States, public pensions are seeking outsize returns for their investments to make up the gap. And with interest rates hovering near zero and stock markets gyrating, the pensions and others are increasingly convinced that hedge funds are the only avenue to pursue.

“Even with the short-term ups and downs, at the moment there is not a credible alternative with the same risk profile for pensions,” said Robert F. De Rito, head of financial risk management at APG Asset Management US, one of the largest hedge fund investors in the world.

Hedge funds, once on the investing fringes, have become a mainstay for big investors, amassing huge amounts of capital and accumulating more of the risk in the financial system.

The effect of this latest gold rush into hedge funds is unclear. Some argue that the hedge fund industry’s rapid growth — it has quadrupled in size over the last 10 years — has depressed returns. Others, meanwhile, wonder whether the bonanza in one of the most lightly regulated corners of the investment universe will have broader, less clear implications.

EMERGING MARKETS HEDGE FUNDS REVERSE SEPTEMBER LOSSES WITH STRONG OCTOBER GAINS

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Cautious investors hold new allocations as volatility accelerates


HFR (Hedge Fund Research, Inc.) Report

Emerging markets hedge funds posted strong performance gains in October, reversing sharp losses from September as emerging market (EM) economies and assets continue to experience volatility relating to the European sovereign debt crisis. The HFRX Total Emerging Markets Index gained +4.1 percent in October following a decline of -5.0 percent in September; while intra-month volatility was even more pronounced in specific regions, including Latin America and Russia. In response to this volatility, investors hesitated on making new allocations to EM hedge funds, which saw a modest net outflow of $197 million (0.17 percent of assets under management in EM funds) for the 3Q11, according to the HFR Emerging Markets Hedge Fund Industry Report, released today by HFR. As a result of September losses, total EM hedge fund assets declined by $7.2 billion from the record level established at mid-year to end the third quarter at $115.7 billion.

Net asset flows and asset levels were also only narrowly changed across EM strategies and regions. Investors allocated new capital to EM Event Driven and Relative Value funds, while reducing capital in Equity Hedge and Macro funds. Most regions also showed narrow changes in asset flows over the quarter, with the most significant change being an inflow of $145 million to funds investing across Multiple Emerging Markets.

Reflecting investor interest in lower equity market correlation, the number of EM hedge funds executing Relative Value and Macro strategies continued to increase. Nearly 18 percent of EM hedge funds are Relative Value strategies as of the end of 3Q, utilizing leverage to trade primarily corporate and sovereign fixed income, while over 11 percent are Macro strategies, trading across asset classes with an emphasis on currency and commodities.

Despite the volatility, EM hedge funds have performed well against local equity and currency markets, which have experienced sharp declines in recent months. The HFRX Latin America Index recovered +5.2 percent in October after declining -8.5 percent in September; YTD through October the index has declined less than 7 percent while the Bovespa has declined -15.8 percent. Similarly, the HFRX Russia/Eastern Europe Index gained +5.5 percent in October after a decline of -7.5 percent in September; for the year, the index has declined -11.0 percent through October while Russian equity markets have declined more than -12 percent.

“Emerging market asset volatility has accelerated in recent months in response to external factors and internal EM fundamentals, a trend which is likely to continue to present both opportunities and challenges for hedge funds and investors,” said Kenneth J. Heinz, President of HFR. “Emerging market hedge funds offer sophisticated access to strategies which complement existing EM equity and sovereign fixed income positions with Macro and Arbitrage strategies designed to monetize opportunities in currencies, equities and sovereign bonds, while mitigating certain aspects of directional volatility inherent in emerging market investing.”

Newly launched HFRX Korea Index gains +8.3 percent in October

HFRX Korea Index is comprised of hedge funds investing primarily in Korea and the latest addition to HFR’s comprehensive suite of HFRX EM and Asian hedge fund benchmarks. This new index reflects the increased growth and influence of hedge funds in Asia, and specifically the growth of investors and hedge funds located in Emerging Asia.

The Dow Jones Credit Suisse Hedge Fund Index Up 1.73% in October

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The Dow Jones Credit Suisse Hedge Fund Index (the “Broad Index”) rebounded from September losses to start the fourth quarter up 1.73%.

Oliver Schupp, President of Credit Suisse Index Co., LLC, said, "The Dow Jones Credit Suisse Hedge Fund Index was up 1.73% in October, marking its largest monthly gain since April. Long/Short Equity was the best performing sector, finishing up 4.45% for the month, while Emerging Markets gained 3.70%. Conversely, the Dedicated Short Bias sector was the worst performer, declining -9.59% in October; the strategy, however, remains up 2.34% year-to-date."

Performance for the Broad Index and its ten sub-strategies is calculated monthly. October, September and YTD performance numbers are listed below and are available at www.hedgeindex.com.
Category Oct 2011 Sep 2011 YTD 11
Dow Jones Credit Suisse Hedge Fund Index 1.73% -3.20% -1.53%
Convertible Arbitrage 1.18% -1.77% 1.10%
Dedicated Short Bias -9.59% 8.45% 2.34%
Emerging Markets 3.70% -7.47% -3.43%
Equity Market Neutral 2.76% -2.22% 4.90%
Event Driven 2.56% -5.06% -7.38%
Distressed 1.99% -3.28% -3.02%
Multi-Strategy 2.90% -6.15% -9.97%
Risk Arbitrage 1.91% -1.63% 1.47%
Fixed Income Arbitrage 0.14% -0.19% 3.78%
Global Macro 0.18% -0.07% 6.01%
Long/Short Equity 4.45% -5.22% -5.08%
Managed Futures -5.06% -0.78% -5.11%
Multi-Strategy 2.05% -2.37% 2.61%

The following funds are no longer reporting to the Dow Jones Credit Suisse Hedge Fund Index: Jupiter Europa Hedge Fund Ltd., Tiedemann European Opportunities L.P./Ltd., Quantum Endowment Fund, N.V., and Ashmore Emerging Markets Liquid Investment Portfolio (EMLIP).

The Dow Jones Credit Suisse family of hedge fund indexes includes:

1. The Dow Jones Credit Suisse Hedge Fund Index, an asset-weighted benchmark that seeks to measure hedge fund performance and provide the most accurate representation of the hedge fund universe.

2. The Dow Jones Credit Suisse Core Hedge Fund Index, an investable, asset-weighted hedge fund index that seeks to provide broad representation of the liquid, investable hedge fund universe with limited platform bias. The index reflects the performance of managed accounts and other regulated fund structures sourced from across a range of platforms.

3. The Dow Jones Credit Suisse AllHedge Index, an investable index comprised of all 10 Dow Jones Credit Suisse AllHedge Strategy Indexes weighted according to the sector weights of the Broad Index.

4. The Dow Jones Credit Suisse Blue Chip Hedge Fund Index, an investable index comprised of 60 of the largest funds across the ten style-based sectors in the Broad Index.

5. The Dow Jones Credit Suisse LEA Hedge Fund Index, an asset-weighted, composite index which provides insight in to three specific regions of the emerging markets hedge fund universe (Latin America, EEMEA (Emerging Europe, Middle East and Africa) and Asia).

MHP Hedge Funds and Social Media Survey 2011

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In a survey of 77 hedge fund managers globally, each with at least US$ 1.0 bn in assets under management*, the MHP Survey 2011 has found that hedge fund managers are ignoring social media. 8% are still without a corporate website, let alone a Twitter feed or a Facebook wall.

The survey found that only 1% of the 77 hedge fund managers are active on Twitter, 3% have their own channel on YouTube and none have a wall on Facebook. However, 23% have an active presence on LinkedIn.

Martin Forrest, director, asset management and author of the MHP Survey 2011 says:
“The findings did not surprise us. Historically, hedge fund managers have deliberately kept a low profile and managed their reputations accordingly. They are also concerned about the regulatory implications of social media. As such, adoption of social media is extremely low.

“In the short term, this is not an issue as social media at an institutional level in the asset management industry is in its infancy and very much in ‘broadcasting’ rather than the more interactive mode for which it was intended.

“However, social media is an emerging communications channel for hedge fund stakeholders, particularly current and future employees and clients as well as journalists in financial services media, in their work and personal lives. They are already tweeting and on Facebook, reading news on IPads rather than hardcopy newspapers, communicating and consuming information digitally.

“Many hedge fund managers have a presence on LinkedIn through their current and former employees. For example, social media is a primary communication channel for high-level technology experts sought by quant funds.

“Hedge fund managers should start using social media more actively as additional channels through which to communicate and build lasting relationships with their stakeholders and to develop the reputation of their firms. Taking control of their content, by becoming the best provider of it, is important.”

“Hedge fund managers should also look at social media initiatives in the wider asset management community for inspiration.”

Twitter

Out of 77 hedge fund managers surveyed, only MAN Investments has an active twitter feed (@ManViewpoint). It is using Twitter to tweet about a whole range of issues
economic/investment views, corporate announcements, marketing events and press coverage. 4% of managers are sitting on the Twitter fence. They have secured their corporate name as a Twitter account to protect their brand/intellectual property (IP) but have not been active and not tweeted.

LinkedIn

79% of hedge fund managers surveyed have a presence on LinkedIn with 23% of the 77 surveyed taking active control of their brands on LinkedIn. It is the most used form of social media. The level of LinkedIn employees and followers tends to have a strong correlation with the size and reputation. The three managers surveyed with the most number of employees LinkedIn are: Citadel Investment Group – 1107 employees; MAN Investments – 911; Bridgewater Associates – 856. The three managers with the highest number of followers are: Citadel Investment Group – 3473 followers; Bridgewater Associates – 2606; MAN Investments – 2118.

YouTube

Two hedge fund managers (3% of those surveyed) have their own YouTube channel. Man Investments (Australia) is using it to show short films that it has produced on a range of topics including broad economic/investment views and marketing events. The Bridgewater Associates channel shows footage of an executive making a speech at an industry event. The 19% that have a ‘presence through broadcasters’ are those whose executives have interviewed on TV stations.

Facebook

Facebook is the least used form of social media. No hedge fund manager surveyed has an active Facebook page including a ‘wall.’ 66% have a passive presence whilst 34% have no presence at all.

The geographical spread of the 77 hedge fund managers surveyed was: North America – 56; UK – 10; rest of Europe – 6 and Asia Pacific – 5.

*Source: The MHP survey used Bloomberg Markets’ ‘The World’s 100 Richest Hedge Funds’ survey of February 2011 as its research universe. This survey contains 100 funds, each with an AuM of at least US$ 1.0 billion managed by 80 hedge fund managers. The MHP survey focused on 77 hedge fund managers, for whom hedge funds are a core part of their business.

Dow Jones Credit Suisse Hedge Fund Index (“Broad Index”) finished up 1.52% in October

Early estimates indicate the Dow Jones Credit Suisse Hedge Fund Index (“Broad Index”) finished up 1.52% in October (based on 73% of assets in the index reporting).


Strategy Estimates

Index
Oct
Broad Benchmark Index
1.52%
Convertible Arbitrage
1.10%
Dedicated Short Bias
-9.98%
Emerging Markets
3.44%
Equity Market Neutral
2.67%
Event Driven
2.62%
Distressed
2.46%
Event Driven Multi-Strategy
2.76%
Risk Arbitrage
1.46%
Fixed Income Arbitrage
-0.30%
Global Macro
0.35%
Long/Short Equity
3.92%
Managed Futures
-5.12%
Multi-Strategy
2.31%



Estimates are based on 73% of assets in the index reporting; final October performance will be published November 15th on Bloomberg and online at www.hedgeindex.com. For a complete description of the Dow Jones Credit Suisse Hedge Fund Index, please see the index rules available at www.hedgeindex.com.

The Dow Jones Credit Suisse Core Hedge Fund Index Up 1.85% in October

Five out of seven strategies posted gains

Oliver Schupp, President of Credit Suisse Index Co., LLC, said, "Event Driven was one of the highest performing sector last month as many managers restructured their portfolios to reduce exposure to softer ‘catalyst’ situations, such as management changes and litigations. These situations were drivers of underperformance in September. Meanwhile, Managed Futures, the best performing strategy in September, was the worst performer in October as trends reversed against many short equities, short commodities and long fixed-income positions."

The Dow Jones Credit Suisse Core Hedge Fund Index provides the benefit of daily valuations which enable investors to track the impact of market events on the hedge fund industry. October, September and year-to-date 2011 performances are available at www.hedgeindex.com.

GLOBAL INVESTORS ALLOCATE TO ASIAN HEDGE FUNDS IN 3Q11 AS GLOBAL EQUITY, SOVEREIGN DEBT MARKETS FALL

HFR Asian Hedge Fund Industry Report for Q3 2011


HFRX China Index tops Shanghai Composite despite quarterly decline; Sixth consecutive quarter of inflows to Asian hedge funds

Global hedge fund investors allocated over $1.4 billion in net new capital to Asian hedge funds in 3Q11 as global financial markets responded to developments in the European sovereign debt crisis and weakening economic growth prospects across developed economies, according to the latest edition of the Asian Hedge Fund Industry Report, released today by HFR, the global leader in the indexation, analysis and database management of the alternative investment industry. The third quarter inflow represents the sixth consecutive quarterly net inflow from investors into Asian hedge funds and the eighth quarter in the last nine quarters that Asian funds have seen positive flows. As a result of performance based asset declines, total assets under management (AUM) in Asian hedge funds declined to $82.6 billion, the first quarterly decline in over a year.

HFRX Indices October 2011 performance notes

Complete indices

Financial markets posted strong gains in October as equity markets recovered from two months of sharp declines with broad market advances led by strength in small cap, Energy and Technology sectors. Credit tightened as US treasury yields rose while the yield curve steepened. The dollar generally fell against most major currencies, as general sentiment improved into month end regarding possible resolution of the European sovereign debt crisis. Commodities also posted gains, with Copper and Oil posting the strongest performance, while implied volatility declined sharply into month end. Hedge funds posted gains with contribution from Equity Hedge and Event Driven strategies, with the HFRX Global Hedge Fund Index gaining 0.81% for the month.

Event Driven strategies had the strongest contribution to index performance, with the HFRX Event Driven Index gaining +2.1% for the month. All ED sub-strategies posted gains on tightening credit, broad equity market gains and tightening risk arbitrage spreads, with Distressed posting the strongest gains; the HFRX Distressed Index gained +3.06% for the month. Equity sensitive Special Situations and Merger Arbitrage also posted gains, with these indices +2.0% and +1.3%, respectively, for the month.

Equity Hedge funds also had a significant positive contribution to index performance, with the HFRX Equity Hedge Index gaining +1.36%. Equity Hedge experienced broad based gains across nearly all sub-strategies, with Fundamental Value +1.23% and Equity Market Neutral +0.60%. Gains in Energy, US large cap and Technology were only partially offset by short position hedges and mixed performance in Asian exposure. Mean Reverting, Factor-based models posted the strongest gains in Equity Market Neutral as volatility declined.

The HFRX Relative Value Arbitrage Index gained +1.16%, as credit tightening and energy infrastructure exposure was only partially offset by falling volatility and rising treasury yields. The HFRX RVA: Multi-Strategy Index gained +1.4% while the HFRX Convertible Arbitrage Index declined by -0.55% on rising yields and falling volatility.

The HFRX Macro/CTA index posted a decline of -1.99%, with broad based declines in systematic, trend following strategies only partially offset by gains in discretionary strategies. The HFRX Macro Systematic Diversified Index declined by -4.84%, as many trends reversed throughout the month with negative contributions from short exposure to equities, long fixed income and long US dollar exposure. Discretionary strategies had a partially offsetting positive contribution, with gains in commodity and currency exposure.

HEDGE FUNDS ADVANCE +2.46% IN OCTOBER

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Hedge Funds Underperform as Equity Markets Experience Best October in 37 Years


The Hennessee Hedge Fund Index advanced +2.46% in October (-2.95% YTD), while the S&P 500 increased +10.77% (-0.35% YTD), the Dow Jones Industrial Average advanced +9.54% (+3.25% YTD), and the NASDAQ Composite Index climbed +11.14% (+1.19% YTD). The Barclays Aggregate Bond Index advanced +0.11% (+6.79% YTD) as bonds were mixed. Treasuries declined with the S&P/BG Cantor 7-10 Year Treasury Bond Index falling -1.31% (+12.73%), while the Barclays High Yield Credit Bond Index increased +5.99% (+4.52% YTD).

“Renewed optimism about the U.S. economic recovery, Europe's ability to address its debt problems, and China’s ability to avoid a hard landing resulted in a remarkable ‘risk on’ phase,” commented Charles Gradante, Co-Founder of Hennessee Group. “Hedge funds posted their best monthly gain so far this year, driven by the rebound in risk assets.”

“Performance indicates that hedge funds were underexposed to the markets. Many were conservatively positioned with low gross and net exposures, and as a result, they did not fully participate in the market rally.” commented Lee Hennessee, Managing Principal of Hennessee Group. “In addition, massive short covering resulted in negative alpha generation and detracted from performance.”

The Hennessee Long/Short Equity Index advanced +3.14% (-2.53% YTD) in October. Managers benefited from the strong equity rally as the S&P 500 gained +10.77%, essentially erasing the year’s entire loss (-0.35% YTD). All sectors were positive in October. The best performing sectors were energy (+16.95%) and materials (+17.90%), while telecommunication services (+1.76%) and utilizes (+3.52%) were the worst performing. Small caps also performed well as the Russell 2000 gained +15.04% (-5.43% YTD). Hedge fund managers were conservatively positioned with gross and net exposures at the lower end of historical ranges and with significant cash balances. The best performing managers increased exposures intra month as the equity markets rallied. U.S. domestic earnings dominated the month, and, according to reports, more than two thirds of the companies beat their estimates. While hedge fund managers typically outperform during earnings season as they are able to pick winners and losers, this period was challenging as correlations among securities remained extremely high. In addition, the run up in risk assets was also largely due to short covering. The most shorted stocks outperformed the least shorted stock during the rally, which detracted from performance and resulted in negative alpha generation in portfolios.

“It has been an extremely challenging investment environment. We have seen managers get ‘whipsawed’ due to headline risks, especially related to the Eurozone sovereign debt crisis,” commented Charles Gradante. “Looking forward, things should remain volatile. Europe needs to decide on upcoming Greek debt details and austerity programs, and, in the U.S., the congressional Super Committee’s deadline for $1.2 trillion in cuts and taxes is looming in November.”

The Hennessee Arbitrage/Event Driven Index rallied in October, increasing +1.85% (-1.68% YTD) as risk assets rallied and spreads tightened. The Barclays Aggregate Bond Index advanced +0.11% (+6.79% YTD) as bonds were mixed. Treasuries declined with the S&P/BG Cantor 7-10 Year Treasury Bond Index falling –1.31% (+12.73%) during the month, as the 10-year Treasury yield increased 25 basis points to 2.17% from 1.92%. The Barclays High Yield Credit Bond Index increased +5.99% (+4.52% YTD). While new issue activity continues to be limited relative to earlier in the year, there were some positive signs as some issuers were able to tap the capital markets. The Hennessee Distressed Index increased +2.75% in October (-2.32% YTD). Distressed portfolios rebounded as the equity markets rallied. However, distressed and illiquid names generally lagged more liquid names during the rally. In addition, hedges, which had increased during the turmoil in September, detracted from performance. The Hennessee Merger Arbitrage Index advanced +1.47% in October (-0.13% YTD). Managers benefited from the equity market rally and spread tightening. There was a healthy flow of new deals, and managers are actively adding new merger arbitrage situations to their portfolios, including Goodrich and Synthes. While deal spreads have narrowed, they remain attractive. The Hennessee Convertible Arbitrage Index returned +1.15% (-1.06% YTD) in October. During the month, convertible bond valuations generally richened in most global regions. The rally in the equities and tightening of credit spreads led to convertibles being better bid. The volatility index VIX eased to 30 from its September month-end level of 43.

“Some managers have expressed concern that the assertion of a German led fiscal integration in the euro zone would make it increasingly unattractive for all the countries that joined to stay in the single currency,” commented Charles Gradante. “Portugal, Ireland, Finland and Greece could pull out of the Euro rather than have to operate under a single euro zone treasury.”

The Hennessee Global/Macro Index increased +1.47% in September (-5.29% YTD). The MSCI All-Country World Index of global stocks jumped +10.62% in October (-6.11% YTD), its best month since April 2009, after Germany and France pledged to support European banks and increase the rescue fund. Strength was broad based as all developed markets were positive except Greece. International hedge fund managers were positive, but lagged the benchmark due to cautious positioning, as the Hennessee International Index advanced +1.84% (-4.72% YTD). Emerging markets advanced +12.23% in October, which was their best monthly performance since May 2009. Russia gained +16.72% (-13.91% YTD), Brazil added +18.34% (-16.67% YTD), and China increased +16.65% (-15.30% YTD). Hedge fund managers were conservatively positioned with low beta exposure going into October, and underperformed on a relative basis, as the Hennessee Emerging Markets Index was up +2.94% (-8.67% YTD). The Hennessee Macro Index was down -0.56% in October (-0.56% YTD). Macro managers again displayed wide performance dispersion. Managers positioned bullish on risk assets experienced gains, while managers bearish on risk assets suffered losses as investors’ excitement over the most recent plan to address the European sovereign debt crisis drove strong rallies in risk assets. The S&P Goldman Sachs Commodity Index retraced much of its September losses, advancing +9.75% in October (+0.46% YTD). The gains were led by strong performance of oil prices and supported by a -3.04% decline in the U.S. Dollar Index. Emerging and commodity-linked currencies rebounded after a sharp selloff in September. Gold also reversed some of its recent losses, returning to almost $1,750 an ounce.

Eurekahedge Index up 1.88% in October

Mizuho-Eurekahedge Index remains in black, Oct YTD

The Eurekahedge Hedge Fund Index gained 1.88%1 in October as optimism returned to the global economy and markets posted strong rallies. The MSCI World Index gained 8.65%2 amid moves to resolve the European debt crisis, as well as better than expected economic data from the US.

Global markets are down 7.60%3 (October YTD), while the Eurekahedge Hedge Fund Index is down 3.05%. The asset weighted Mizuho-Eurekahedge Top 100 Index4 continues its strong run for the year and is now up an impressive 1.17% in 2011.
Key highlights for October:

The Eurekahedge Hedge Fund Index witnessed its largest gain of 2011, rising 1.88% during October

The Mizuho-Eurekahedge Top 100 Index remained in positive territory for the year with a 1.17% return (October YTD)

Long/short equity funds posted their largest gain since May 2009, gaining 4.1%

Early reports indicate net positive asset flows to hedge funds in October 2011

Japanese hedge funds have attracted the largest asset flows (in percentage terms), increasing 7.5% for the year, allowing Asian hedge fund assets to remain at US$130 billion

Launch activity remained strong through 3Q 2011 with more than 150 new hedge funds launched during this time5

Main Indices
Table 1: Main Indices
Index
Oct 2011
Est1

2011
Returns

2010
Returns

Eurekahedge Hedge Fund Index

1.88
-3.05
10.76
Mizuho-Eurekahedge Top 100 Index new
0.73
1.17
10.19
Eurekahedge Fund of Funds Index

1.31
-3.96
4.64
Eurekahedge Long-Only Absolute Return Fund Index

6.21
-9.97
15.59
Eurekahedge Islamic Fund Index

3.63
-2.73
9.44

Regional Indices

Table 2: Regional Indices
Index
Oct 2011
Est1

2011
Returns

2010
Returns

Eurekahedge North American Hedge Fund Index

2.74
-0.89
13.72
Eurekahedge European Hedge Fund Index

2.83
-4.26
8.99
Eurekahedge Eastern Europe & Russia Hedge Fund Index
6.36
-11.34
16.32
Eurekahedge Japan Hedge Fund Index

-0.20
-1.13
8.30
Eurekahedge Emerging Markets Hedge Fund Index

3.38
-5.04
10.48
Eurekahedge Asia ex-Japan Hedge Fund Index

4.13
-9.05
10.09
Eurekahedge Latin American Hedge Fund Index

1.67
1.42
9.61
All regional mandates finished the month with positive returns. Managers investing in Eastern Europe & Russia witnessed the largest gains, up 6.36%. Risk appetite was given a boost early in the month as European economies moved to recapitalize their banks; the emerging markets in the region gained substantially from the positive sentiment. The Eurekahedge European Hedge Fund Index also posted healthy gains of 2.83% in October.

Among other regions, Asia ex-Japan managers posted impressive returns of 4.13%, posting gains across the different strategies and asset classes. The MSCI AC Asia Pacific Ex Japan Index was up 8.63%. North American managers also posted strong profits in October, up 2.74%, on the back of European optimism as well as better than expected economic data. The S&P 500 witnessed its largest gain in 20 years, posting returns of 10.77% in October. A number of North American managers, as well as managers across other regions, missed out on the early rally, as risk aversion from September saw them with net negative exposures at the start of October. Latin American managers also posted gains of 1.67% during the month, and continue to remain ahead of the rest for year – the Eurekahedge Latin American Hedge Fund Index is up 1.42% October YTD.


Strategy Indices
Hedge funds investing in riskier assets raked in the largest gains in October with distressed debt managers gaining 3.56% while long/short equity managers posted excellent gains of 4.11%. The US corporate credit markets were up, along with equity markets, on the back of surging risk appetite during the month. The high yield bond sector witnessed strong inflows from investors looking to take advantage of opportunities after the segment experienced two consecutive months of sell-offs. The BofA Merrill Lynch High Yield Index6 was up 5.96% during the month. Long/short equity funds posted their largest gain since May 2009 as equity market rallies were supported by US economic indicators that kept beating estimates throughout the month, which in turn were supplemented by positive movements in the European debt situation. CTA/managed futures funds were down 1.84% during month, with short-term systematic traders losing out the most. CTA/managed futures funds investing in equity index futures posted strong returns however, while managers with exposures to metals (both base & precious) and oil also witnessed gains for the month.

Table 3: Strategy Indices
Index
Oct 2011
Est1

2011
Returns

2010
Returns

Eurekahedge Arbitrage Hedge Fund Index

1.50
1.03
9.38
Eurekahedge CTA/Managed Futures Hedge Fund Index

-1.84
-3.60
12.07
Eurekahedge Distressed Debt Hedge Fund Index

3.56
-1.64
22.71
Eurekahedge Event Driven Hedge Fund Index

2.54
-4.36
15.21
Eurekahedge Fixed Income Hedge Fund Index

1.29
1.80
10.46
Eurekahedge Long/Short Equities Hedge Fund Index

4.11
-4.78
10.28
Eurekahedge Macro Hedge Fund Index

0.11
-1.97
7.53
Eurekahedge Multi-Strategy Hedge Fund Index
1.88
-1.35
9.63
Eurekahedge Relative Value Hedge Fund Index

1.64
-0.49
11.41

Eurekahedge indices are available for download from www.eurekahedge.com/indices/hedgefundindices.asp and are updated with the latest fund returns at 23:30 GMT every day. Index values and data can be downloaded for free and subscribers can download the full list of index constituents. Please contact indices@eurekahedge.com for more information.

“Hedge Fund Maturity Model“

“Understanding the Hedge Fund Maturity Model”

Download PDF Download PDF


As the Alternatives industry prepares for increased capital flows, Investors and Regulators look increasingly at hedge funds' organizational and infrastructure maturity.

This Citi Prime Finance's Business Advisory whitepaper, “Hedge Fund Maturity Model“ takes a best practices approach and lays out a framework and taxonomy for discussing hedge fund evolution. This work is based on detailed analysis and benchmarking of the different types of funds that exist in the new landscape. It attempts to highlight the key organizational, operational and technology transitions that take place at different stages of a firm's development and provides a template for understanding the inner workings of a manager as AUM grows and as the firm's scale of operations advances.

Citi Prime Finance's Business Advisory team has based this model on a comprehensive profiling exercise. This maturity model will become the foundation for our new full range of business advisory services covering management consulting, operational consulting, start-up services, and technology consulting.

Hedge Funds Lagged Major Markets in October, Investor Sentiment Still Weak

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eVestment|HFN Hedge Fund Industry Research Release

Defensive positioning and currency exposures weighed on aggregate performance in October and early indications show that redemptions again outpaced allocations in the month.

Below are early estimates1 for October hedge fund performance and asset flows. A full report will be available later in the month.

October Highlights:

 The HFN Hedge Fund Aggregate Index was +2.31% in October 2011 and -3.61% on a year-to-date (YTD) basis. The S&P 500 Total Return Index (S&P) was +10.93% in October and +1.30% YTD.

 Early reporting funds indicate industry redemptions again outpaced allocation in October. Should the trend hold as more funds report, hedge fund AUM will have decreased for a third consecutive month and redemptions will have outpaced allocations for the third month in the last four. Total industry AUM is estimated at $2.453 trillion at the end of October 2011.

 Equity strategies, +4.19%, outperformed credit strategies, +0.94%, in October and commodity focused funds were broadly down, -2.00%, for the month. It appears FX focused funds and FX exposures within macro and managed futures strategies weighed down aggregate hedge fund returns in October. With approximately 20% of funds which have reported October performance thus far being commodity focused we expect the HFN HF Aggregate Index to show some upward bias as more funds report.

 Special situations and long only strategies, along with sector specific equity funds, were the top performers of the month. Early reporting special situations strategies posted +10.80% in October while long only funds are reporting an average of +8.10%. Although all sector specific equity funds outperformed against Q3 2011, technology focused strategies did not exhibit as much upside as its peers averaging +1.05% compared to aggregate equity strategies performance of +4.19%.

 All regional indices showed positive returns for October with the exception of funds focused on the Middle East/North Africa, -1.64%. Russia and Brazil were the biggest gainers averaging +10.95% and +8.22% for the month, respectively. Notably, Australia focused funds averaged +7.67% moving the group into positive territory, +4.67%, on an YTD basis.

 EM equity funds outperformed EM fixed income funds, +4.41% vs. -0.22%, in October reversing a five month trend. Europe focused funds gained in October, +2.48%, but still remain underwater on an YTD basis at -5.46%.

It appears that defensive positioning from equity focused funds, muted returns from non-distressed credit and relative value strategies and losses from managed futures funds, likely due to long exposures to the US dollar, resulted in aggregate hedge fund returns significantly lagging the massive equity market rebound. There were pockets of strong performance, but during months like October it is not expected that the industry keep pace with equity markets.

Investor sentiment is still weak, but it is difficult to tell if this is due to a temporary decline in new allocations, or if redemptions are abnormally high. Given market volatility, it is likely the case that new allocations are on hold while redemptions are slightly higher than normal due to performance losses in prior months.
1Early estimates are based on funds reporting October returns as of November 9, 2011. Performance has a tendency to drift lower as more funds report. Asset estimates may drift lower, but have not shown a consistent tendency to do so.

The full eVestment|HFN October report, to be released in the third week of November, will provide details on high water marks and asset flows by strategy and region.

October 2011 and YTD Benchmark Performance

Emerging Market Benchmarks

HFN Brazil Index: +8.22% in October, -3.65% YTD
HFN China Index: +4.07% in October, -10.64% YTD
HFN India Index: +2.32% in October, -22.00% YTD
HFN Russia Index: +10.95% in October, -13.06% YTD
HFN Latin America Index: +7.45% in October, -4.47% YTD
HFN Middle East/North Africa Index: -1.64% in October, -17.30% YTD
Emerging Markets Debt: -0.22% in October, +0.39% YTD
Emerging Markets Equity: +4.41% in October, -12.40% YTD
HFN Emerging Markets Index: +3.40% in October, -12.09% YTD

Broad and Developed Market Benchmarks

HFN Asia Index: +2.55% in October, -8.26% YTD
HFN Europe Index: +2.48% in October, -5.46% YTD
HFN North America Index: +4.96% in October, -0.22% YTD
HFN Australia Index: +7.67% in October, +4.67% YTD
HFN Japan Index: +1.23% in October, -4.22% YTD
HFN U.S. Index: +4.86% in October, +0.16% YTD

Fixed Income (FI) Strategies

All Fixed Income Strategies: +0.94% in October, +3.03% YTD
Corporate Bond Strategies: +2.33% in October, +3.63% YTD
Government Bond Strategies: +0.68% in October, +2.61% YTD
HFN Distressed Index: +4.09% in October, -0.22% YTD
HFN Mortgages Index: +0.47% in October, +9.78% YTD
HFN Fixed Income Arbitrage Index: +0.01% in October, +2.72% YTD

Equity (EQ) Strategies

All Equity Strategies: +4.16% in October, -5.02% YTD
HFN Long/Short Equity Index: +4.70% in October, -4.18% YTD
HFN Market Neutral Equity Index: +2.01% in October, +0.80% YTD
HFN Short Bias Index: -9.69% in October, +2.54% YTD
Energy Equity Strategies: +7.27% in October, -6.47% YTD
Financials Equity Strategies: +3.26% in October, -6.19% YTD
Healthcare Equity Strategies: +4.55% in October, +2.57% YTD
Natural Resource Equity Strategies: +12.71% in October, -3.50% YTD
Real Estate Equity Strategies: +7.24% in October, -2.41% YTD
Technology Equity Strategies: +1.05% in October, -6.52% YTD
Commodity and Foreign Exchange (FX) Strategies
Foreign Exchange Strategies: -2.59% in October, -4.39% YTD
Financial Futures Strategies: -1.62% in October, -1.52% YTD
Commodity (Non-FX) Strategies: -2.00% in October, -2.05% YTD
HFN CTA/Managed Futures Index: -2.25% in October, -3.89% YTD

Investors Want Greater Board Responsibility and Accountability in Key Areas, 5th Annual EY Global Hedge Fund Survey Finds

Perceptions among investors and managers differ on some key aspects related to governance, fund expenses, administration, succession and capital raising


Global hedge fund managers and investors agree on key industry issues, but disagreement still exists in some important areas, according to Ernst & Young's fifth annual survey of the global hedge fund market.

The report, which juxtaposes the views of managers and investors, indicates that the two groups differ on some important matters such as governance, fund expenses, administration, succession and capital raising.

• Governance. Only 45 percent of investors said that their funds' Boards of Directors are very effective at carrying out their duties to funds, while almost 70 percent of managers feel the board is very effective.

• Fund expenses. Seventy-six percent of investors want shadow accounting, but only 35 percent are willing to pay for it.

• Administration. Three-quarters of investors said it is important that a hedge fund completely outsource valuation to an administrator, but 71 percent of managers perceive risks in this.

• Succession. Two-thirds of investors feel that having a well-articulated succession plan is important to their investment decisions, while only 38 percent of managers agree.

• Capital raising. There appears to be a lack of clarity between investors and managers about the loss of mandates. Almost 40% of managers say they do not really know why they lost a mandate. Investors point to concerns about risk management policies, inconsistency of information presented and lack of independent Board or administration..

The findings in the report, Coming of Age, were compiled by consulting firm Greenwich Associates for Ernst & Young. This year's study polled 92 hedge fund managers who manage some US$600 billion, and 42 institutional investors with over US$130 billion allocated to hedge funds.

"The recovery of the hedge fund market has been encouraging, but as the industry comes of age, investors are getting increasingly interested in governance and supervision where there remains considerable gaps in perception and in reality," says Ratan Engineer, global leader of Ernst & Young's Asset Management practice. "To continue satisfying investor demands and foster compliance, we need to ensure that hedge fund investors and managers are on the same page."

Despite several opinion gaps, investors and hedge fund managers agree on several issues, including their top concern: the impact of regulation, which is cited as the chief worry of 48 percent of hedge fund managers and 36 percent of investors.

Some key findings from the report are as follows:

Governance

Although managers and investors agree that independence is important for good governance, investors remain wary of boards' effectiveness. Sixty-eight percent of managers say the board of directors is effective in carrying out its duties, but only 45 percent of investors agree. Three-quarters of managers say the board is accountable to investors, but only 38 percent of investors say the same.

Investors want greater board accountability; they desire board responsibility for investment guideline compliance (36%), reviewing and approving NAVs (29%), resolving disputes over valuations (19%) and setting risk policies and thresholds (38%). However, most managers (69%) say that they, rather than the board, currently have responsibility and accountability for compliance with investment guidelines, and 72 percent say they establish overall risk policy and thresholds.

"Investors still feel their Boards are most interested in serving the interests of managers, rarely challenging them on issues that really matter to investors such as valuations, risk and style drift. There is a need for a closer consensus with Boards acting neither as lap dogs nor dictators to the managers," says Engineer.

Fund expenses

Higher costs for compliance, regulatory reporting and other infrastructure items coupled with the increased trend of outsourcing and extensive shadowing have resulted in margin compression across the industry. Hedge funds are increasingly evaluating how expenses should be shared between the investment manager and the fund. However, managers and investors differ on what costs should be passed through. While the majority of investors agree that it is important to perform shadow accounting, almost two-thirds of investors object to passing on the cost of shadow accounting; yet, more than one-quarter of managers said that they currently pass on these costs.

Fee and margin pressures are also causing more managers to offer graduated fees in return for larger mandates. More than twice as many hedge funds as last year say they have offered graduated fees for larger mandates.

"We see in these survey results a definite call to action for hedge fund managers to align their fund expenses to what investors expect and are willing to pay," says Arthur Tully, co-leader of Ernst & Young's Global Hedge Funds practice.

Administrators

Nearly all managers use administrators in some capacity, and nearly two-thirds of both groups agree that administrators have a positive impact on investor confidence. However, a majority of investors (74%) said it is important that managers completely outsource valuation to an administrator, but most managers (71%) perceive risks in fully outsourcing this function. Despite this, just one in four managers or investors is confident that administrators can accurately value Level 3 assets.

Shadowing is prevalent, and is often deemed to be a necessity – 76 percent of investors cite it as important. However, in many cases shadowing results in a replication of the work that administrators are performing, which then requires reconciliation between the fund's and the administrator's systems.

"The findings reveal a significant duplication of efforts and a business model that is expensive and unique to the hedge fund industry. Over the long term, hedge funds will likely re-examine their shadowing activities and begin to create a control environment that takes advantage of the administrator's strengths while building in controls to address any shortcomings," notes Tully.

Succession planning

Managers underestimate the importance to investors of a clear succession strategy. Nearly two-thirds of investors said having a well-articulated succession plan is important to their comfort level. However, only 38 percent of managers said they thought a well-articulated plan is important to retaining investors. Only 39 percent of managers said they have a well-developed succession strategy, while 50 percent of investors said they are confident with their hedge funds' succession strategies.

Hedge funds and investors also view loyalty differently. Over half of managers believe investor loyalty lies with the founding principals. However, 55 percent of investors say their primary loyalty is to individual portfolio managers.

Investors also are more likely than hedge fund managers to want founding principals to increase their equity stakes. Eighty-three percent of investors say they want founding principals to have "skin in the game" and leave significant assets with the fund upon transition. However, only 60 percent of managers say the same, instead focusing on positioning certain professionals as the face of the firm, which is important to only 17% of investors.

Capital raising/due diligence

Due diligence processes have changed. While long-term investment performance remains a priority, investors say they are more concerned with operational due diligence and internal controls. Nearly two-thirds of investors say that the most important criterion when selecting a manager is the portfolio management team. Yet only half of managers feel the same. Managers instead identify long-term performance as one of the most important criteria (72%), but only 43 percent of investors agree.

"Many managers feel they are not getting a straight answer when an investor passes on a mandate, leaving them guessing at the reasons why," comments Tully. "There is a significant opportunity to improve communications between managers and investors so managers can better provide investors with what they need to make good decisions."


About the survey

Greenwich Associates interviewed 92 hedge funds representing nearly US$600 billion in assets under management, and the views of 42 institutional investors representing US$1 trillion in assets under management. The objective of the study was to record the views and opinions of hedge funds and hedge fund investors globally, measure the views of each on the same topics and examine the two groups together. Hedge funds and hedge fund investors were asked to comment

Hedge Funds Redeem $5.0 Billion in September, Second Outflow in Three Months

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Hedge Fund Managers Remain Bearish on S&P 500, According to BarclayHedge/TrimTabs Survey

Hedge funds redeemed $5.0 billion in September, the second outflow in three months, report BarclayHedge and TrimTabs Investment Research. Industry assets decreased to $1.72 trillion, the lowest level in 12 months.

“Hedge fund investors have grown much more cautious,” says Sol Waksman, founder and President of BarclayHedge. “They pumped $58.5 billion into hedge funds between January and June, the heaviest first-half inflow since 2007. But then they withdrew money in two of three months for the first time since 2009.”

Hedge fund investors have been dumping emerging markets equities. Emerging markets hedge funds redeemed $3.7 billion in September, the third straight outflow as well as the heaviest since April 2009. Returns were ugly. The Barclay Emerging Markets Index plunged 7.7% in September, the worst return since October 2008.

“While hedge fund investors are extremely bearish on emerging markets equities, ETF investors are wildly bullish,” notes Leon Mirochnik, Research Analyst at TrimTabs. “The flow data we track daily shows that emerging markets ETFs raked in $5.1 billion in the past four weeks. Performance has proven impressive. Some emerging markets ETFs returned as much as 19% in less than a month.”

The latest TrimTabs/BarclayHedge Survey of Hedge Fund Managers reveals that managers remain bearish on domestic equities, although they are less downbeat than four weeks ago. Bearish sentiment on the S&P 500 decreased to 41% in October from 57% in September, while bullish sentiment increased to 35% from 16%. The survey also reveals that hedge fund managers are most upbeat on the Russell 2000 Value Index and the Russell Global Large Cap Index, while they are least upbeat on the Russell 2000 Growth Index.



“This result does not surprise us,” notes Mirochnik. “The Fed is in the process of buying $400 billion in long-dated Treasuries and selling an equal sum in the short end, while markets are especially volatile and uncertain as the debt crisis in Europe rages. In an environment like this, it makes sense to us that hedge funds managers are much more interested in large caps and dividend yield than growth.”

Emerging Hedge Fund and CTA Managers Still in Positive Territory

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New Opalesque Emanagers Index: Emerging Hedge Fund and CTA Managers Still in Positive Territory Year to Date, Returned 60% Since 2009

Opalesque Ltd., a leading provider of online information services to the alternative investment industry, today announced the official launch of the Opalesque Solutions Emanagers Database and Index series. The Opalesque Emanagers Total Index is based on currently 293 emerging hedge fund and managed futures fund managers listed in the Emanagers database, the industry's only database dedicated exclusively to hedge fund management firms less than 48 months old and with assets under management of less than $600 million at the time of the firm's inception.

The Emanagers Total Index, currently consisting of 198 hedge funds and 94 managed futures funds, lost 1.91% in September and is up 0.37% year to date. Since January 2009, the index has performed exceptionally well, returning 34.5% in 2009 and 18.73% in 2010, adding to a cumulative return of 60.29%. Funds listed in the Emanagers Database thus managed to outperform both the HFRI Fund Weighted Composite Index and the MSCI World Index every year since 2009.

To provide a more detailed picture and allow for reasonable comparison, Opalesque also created two sub-indices, namely the Emanagers Hedge Fund Index and the Emanagers CTA Index. Opalesque data shows that although managed futures strategies and hedge fund strategies tend to perform almost independently in normal market conditions, the correlation changes to a strong negative in times of market turmoil, like the ones experienced in late 2008 to early 2009, as well as the summer months of 2011. This provides strong evidence that a mix of hedge fund and managed futures strategies is a very useful portfolio diversifier in the long run.

Performance analysis of Opalesque sub-indices slightly changes the picture in the short run: Emerging hedge fund managers underperformed the HFRI year to date, with a cumulative loss of -5.32% compared to -4.85%. Interestingly, this underperformance arose in the months of July to September this year. Opalesque assume the reason for the bigger drawdown this summer is the overall higher performance volatility of Emanagers hedge funds (7.94) compared to HFRI funds (6.46).

In the long run, however, Emanagers hedge funds outperformed the HFRI in 14 of the 21 months tracked Opalesque so far, returning 17% in 2010 and 37.6% in 2009, adding to a cumulative return of 52.5%, compared to 25.9% for the HFRI. This supports previous empirical research (e.g. Neuberger Berman (2011) and Infiniti (2009)) showing that emerging hedge fund managers tend to outperform their established peers.

Emanagers managed futures funds had an outstanding year, returning 12.2% through September. This comes after a performance of 19.2% in 2010 and 20.5% in 2009. In a nutshell, Emanagers managed futures funds have outperformed the Barclay CTA Index every year so far.

About Opalesque:

In 2003, with the publication of its daily Alternative Market Briefing, Opalesque successfully launched an information revolution in the hedge fund media space: "Opalesque changed the world by bringing transparency where there was opacity and by delivering an accurate professional reporting service." - Nigel Blanchard, Culross. This hybrid financial news service, which combines proprietary industry news stories and filtered third party reports, has been credited by many industry insiders with delivering precise, accurate, and vital information to a notoriously guarded audience.

Each week, Opalesque sends out over 700,000 editions of its seventeen publications to a global readership in over 170 countries. Opalesque is the only daily hedge fund publisher which is actually read by the elite managers themselves.

HEDGE FUND COMPENSATION DECLINES ON PERFORMANCE VOLATILITY

Senior Traders see largest declines

Hedge fund compensation declined by approximately ten percent on average across varied functional roles in 2011, according to the 2012 edition of the Glocap Hedge Fund Compensation Report. The compensation data released today shows a wide dispersion of compensation, between and within firms, driven by a number of variables including role, seniority/experience, fund size and performance for the year.

The total hedge fund industry surpassed previous record levels of total capital under management in both 1Q and 2Q11, reaching $2.04 trillion, before declining sharply in 3Q as the hedge fund industry posted the fourth-worst performance quarter in history, with the HFRI Fund Weighted Composite declining by -6.2 percent. The growth in assets under management led to an increase in overall management fee income that partially offset the decrease in incentive fee income. In addition, despite 3Q performance, the percentage of funds reaching their performance high watermarks in the trailing 12 months continued to rise, exceeding 70 percent as of the end of 3Q11, which further stabilized the pool of income available for compensation.

HFR Global Hedge Fund Industry Report for Q3 2011: HEDGE FUND ASSETS POST SHARP DECLINE ON 3Q PERFORMANCE LOSSES

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Industry posts 4th worst performance quarter in history, reducing assets from record level; Positive investor flows concentrated in Relative Value Arbitrage; Macro sees outflows

Hedge funds posted the fourth worst quarterly performance in industry history in 3Q11, as a combination of uncertainty regarding the European sovereign debt crisis and weakening economic data contributed to volatility across equity, credit, commodities and currencies. These performance declines reduced total hedge fund industry capital by $85 billion.

The asset decline ends two consecutive quarters in which total capital under management eclipsed new record levels, and brings total hedge fund industry AUM to $1.97 trillion. The HFRI Fund Weighted Composite Index declined by -6.2 percent for the quarter, wiping out a small 1H11 gain and bringing year to date (YTD) performance for the broad based composite to a decline -5.4 percent.


Details: HFR Global Hedge Fund Industry Report: Third Quarter 2011

New Dow Jones Credit Suisse Hedge Fund Index Commentary Offers Insight Into September Hedge Fund Performance

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The Dow Jones Credit Suisse Hedge Fund Index finished down 3.20% in September compared with a drop of 9.88% for the Dow Jones Global Index. A new monthly commentary offers insight into hedge fund performance through the month of September. Some key findings from the report include:

- Uncertain market conditions benefited Dedicated Short Bias – the only sector to post positive performance for the month;

- Long/Short Equity managers saw declines, although the sector fared better than broad equity markets, with the Dow Jones Global Index down 9.88% in September, and 18.19% in Q3;

- Tactical strategies, such as Global Macro and Managed Futures, were generally able to withstand the volatile market conditions by maintaining relatively low long exposure or some short exposure to equities; and

- Relative value strategies, such as Multi-Strategy, Convertible Arbitrage and Fixed Income Arbitrage generally experienced mark-to­-market portfolio losses. However, sufficient market liquidity, low leverage and generally defensive positioning have helped managers avoid the pitfalls experienced in 2008.

The full report includes an overview of September hedge fund performance, in-depth commentary on individual hedge fund sectors and hedge fund return dispersion statistics for each strategy.

Morningstar Reports Hedge Fund Performance for September, Asset Flows Through August

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PDF with Data Tables

Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, has reported preliminary hedge fund performance for September 2011 as well as asset flows through August. The Morningstar MSCI Composite Hedge Fund Index, an asset-weighted composite of nearly 1,000 hedge funds in the Morningstar hedge fund database, fell 2.3% for the month of September, compared to a decline of 8.6% for the MSCI World NR Stock Index.

“Hedge funds did their job," said Josh Charney, alternative investments analyst at Morningstar. “While hedge funds generally followed the market down during the economic turmoil of September, on average they didn’t fall far. Some categories even posted positive results.”

European and Asian equity-focused hedge funds in the Morningstar database were among the largest losers in September, but these funds declined much less than their market benchmarks. The Morningstar MSCI Europe and the Morningstar MSCI Asia Pacific Hedge Fund Indexes fell 5.9% and 3.3 %, respectively, while the MSCI AC Asia and MSCI Europe Stock Indexes dove 7.9% and 11.0%, respectively. September marked the end of the worst quarterly performance for the Morningstar MSCI Europe Hedge Fund Index since its 1998 inception—an 8.5% drop. Similarly, the Morningstar MSCI Asia Pacific Hedge Fund Index slumped 8.4% in the third quarter, its worst quarterly performance in three years. Chinese equities tanked over slowing economic growth concerns and Australian stocks pulled back as commodities plunged.

While there were few bright spots in September, two hedge fund indexes managed to post positive numbers for the month. The Morningstar MSCI Short Bias Hedge Fund Index, which tracks bearish hedge funds, increased 10.4% due to its negative market exposure. The Morningstar MSCI Currency Hedge Fund Index eked out a 0.7% rise, as some funds in this index profited from a rising U.S. dollar.

The Morningstar MSCI Directional Trading Hedge Fund Index, which contains funds that take systematic directional bets on price trends in liquid derivatives, also benefited from a rising U.S. dollar. In addition, these funds took advantage of the rise in U.S. Treasury bonds fueled by the Federal Reserve's Operation Twist and investors' rush to safe-haven assets in September.

Higher-risk equity markets performed relatively poorly in September. The Morningstar MSCI Emerging Markets Hedge Fund Index declined 6.8% on renewed fears of a global contraction and a sharp drop in commodity prices. Smaller companies, which tend to perform more poorly in downturns, also exhibited notably weak performance—the Morningstar MSCI Small Cap Hedge Fund Index fell 7.3% in September and 13.8% over the third quarter.


Event-driven strategies such as merger arbitrage and distressed securities also struggled in September amidst falling equity valuations. The Morningstar MSCI Event-Driven Hedge Fund Index plummeted 5.1%, its largest monthly decline since September of 2008. Credit market spreads also widened during September. The Morningstar MSCI Long-Short Credit Index fell 1.3% in September and 4.2% for the third quarter.


Although the third quarter was difficult for most hedge fund categories, investors continued to pour money in to hedge funds in Morningstar's database through August. Total inflows during August for all single hedge fund strategies totaled $625 million, the sixth-straight month of inflows. Systematic futures hedge funds in the database netted the most inflows in August, $328 million in total, while Morningstar's global macro hedge fund category was hardest hit by outflows, totaling about $456 million. For the year-to-date through August, investors added almost $19 billion to single-manager hedge funds in the database, despite the fact that the average hedge fund, as measured by the Morningstar MSCI Composite Hedge Fund Index was down 3.9% year to date through September.


Funds of funds in Morningstar's database, on the other hand, experienced their third-consecutive month of outflows, leaking $108 million in August. Investors have pulled $2.3 billion from funds of funds for the year to date through August.


September returns for the Morningstar MSCI Hedge Fund Indexes are based on funds that reported as of October 17, 2011. August asset flows are based on funds that reported as of October 20, 2011. Hedge fund investors, managers, consultants, and advisors can access additional information through the Morningstar® Alternative Investment CenterSM, formerly Morningstar® AltvestSM, the company’s research platform designed specifically for hedge funds, or Morningstar DirectSM, the company’s global research platform for institutions.


Morningstar has approximately 11,000 hedge funds and funds of hedge funds in its database. Morningstar calculates hedge fund indexes by applying the MSCI Hedge Fund Index Methodology and Hedge Fund Classification Standard to Morningstar’s hedge fund database. These indexes demonstrate the performance of hedge funds to investors who have hedged their currency exposure back into U.S. dollars. The MSCI Hedge Fund Index Methodology classifies hedge funds by investment process, geography, and asset class.

Down But Not Out: The Dow Jones Credit Suisse Hedge Fund Index Falls 3.20% in September – Over $24 Billion Allocated to Hedge Funds Year to Date

The Dow Jones Credit Suisse Hedge Fund Index (the “Broad Index”) fell for a second straight month, finishing down 3.20% in September versus a monthly loss of 9.88% for the Dow Jones Global Index.

Oliver Schupp, President of Credit Suisse Index Co., LLC, said, "The Dow Jones Credit Suisse Hedge Fund Index fell 3.20% in September, marking its largest one month decline in more than a year. Yet for many investors, the hedge fund industry continues to remain attractive on a relative basis compared to other asset classes. For example, equities, as reflected by the Dow Jones Global Index, lost 9.88% last month.” Schupp continued, "Despite the drawdown, hedge funds appear to have performed in line with investor expectations and to have provided a level of capital preservation during an increasingly difficult market period. As a result, the hedge fund industry saw an estimated $25 billion in inflows year-to-date."

Performance for the Broad Index and its ten sub-strategies is calculated monthly. September, August and YTD performance numbers are listed below and are available at www.hedgeindex.com.

Category	Sep 2011	Aug 2011	YTD 11
Dow Jones Credit Suisse Hedge Fund Index	-3.20%	-2.30%	-3.20%
Convertible Arbitrage	-1.77%	-1.73%	-0.07%
Dedicated Short Bias	8.45%	6.56%	13.19%
Emerging Markets	-7.47%	-3.15%	-6.88%
Equity Market Neutral	-2.22%	-0.89%	2.09%
Event Driven	-5.06%	-5.37%	-9.69%
Distressed	-3.28%	-4.41%	-4.91%
Multi-Strategy	-6.15%	-5.98%	-12.51%
Risk Arbitrage	-1.63%	-0.92%	-0.44%
Fixed Income Arbitrage	-0.19%	-0.27%	3.63%
Global Macro	-0.07%	1.91%	5.82%
Long/Short Equity	-5.22%	-4.44%	-9.12%
Managed Futures	-0.78%	0.25%	-0.05%
Multi-Strategy	-2.37%	-1.93%	0.55%

The following funds are no longer reporting to the Dow Jones Credit Suisse Hedge Fund Index: Blenheim Fund LP, Bay Harbour Partners, Apex Market Neutral Greater China Fund and Scottwood Master, Ltd.

Additional information about the Dow Jones Credit Suisse Hedge Fund Indexes -- including research, fund performance and constituent fund information -- can be found at http://www.hedgeindex.com.