The Dow Jones Credit Suisse Core Hedge Fund Index finished down 1.71% in May as alpha remained elusive amidst a difficult trading environment
Oliver Schupp, President of Credit Suisse Index Co., LLC, said, “May was a challenging month for hedge fund managers across strategies as relatively low volatility levels, higher intra-stock correlations and continued market sell-offs created a difficult trading environment. Overall, the Dow Jones Credit Suisse Core Hedge Fund Index was down 1.71% for the month. Managed Futures saw the most significant decline, falling 4.40% as positions in energy, currencies and equities detracted from performance.”
Details here
Monday, June 13, 2011
HFN Industry Overview: April 2011
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On May 31, 2011 with 4,117 hedge fund products reporting, the HFN Hedge Fund Aggregate Index was +1.42% in April and +2.79% YTD 2011 while the S&P 500 Total Return Index (S&P) was +2.96% during the month and +9.06% YTD.
Hedge Fund Industry April Highlights:
�Total industry assets rose an estimated 2.26% to $2.607 trillion in April. Performance accounted for the majority of the asset increase and net investor allocations were positive for the tenth consecutive month.
�A falling U.S. dollar and rising energy and precious metals prices resulted in strong performance from foreign exchange and natural resource strategies in April.
�Healthcare funds produced the best equity market sector focused performance in April followed by technology funds. Despite rising energy prices, energy equity sector fund returns were below average.
�Japan focused funds were again negative during the month, the Japan Index was -0.74% in April and -0.66% YTD.
CTA/managed futures and global macro strategies were the primary beneficiaries of the U.S. dollar's sharp decline to other major currencies along with the rise in gold and nearly 30% spike in silver prices. Conversely, falling yields on the U.S. 10 YR note hurt several funds focusing on government bond related strategies. The group was -0.02% in April even with some strong returns from funds focused on EM sovereign credits.
HFN developed the Outlier ratio to determine which sectors are producing high or low returns outside of their normal ranges. Surprisingly, in April, mortgage focused funds had the lowest average ratio despite the HFN Mortgage Index rising +1.49%. Healthcare, CTA, macro, technology and merger arbitrage funds all had above average ratios in April. Convertible and credit arbitrage, along with mortgage strategies all had low figures.
HFN Regional Benchmarks
Emerging market strategies again outperformed developed market focused funds in April, led by those investing in Brazil and China which returned an average of +2.34% and +2.13%, respectively. Russia focused funds fell during the month, -1.54%, but are still the best performing regional classification in 2011, +4.38%.
Japan funds continued to struggle in the aftermath of March's natural disaster falling -0.74% in April, while the Nikkei rebounded +0.97%. Japan funds have lost an average of -5.30% in the last two months, pushing the HFN Japan Index into negative territory for 2011. April was a rare instance for Japan funds to be negative on average when the Nikkei rises. In the last five years this happened only three other times. In each prior occasion the Nikkei was bouncing off of a large loss.
Monthly Asset Flow Estimates
�Total estimated hedge fund assets at the end of April 2011 were $2.607 trillion, an increase of 2.26%, or $57.6 billion from March.
�Performance accounted for an increase of $41.2 billion and investors accounted for a net inflow of $16.5 billion.
�The core rate of growth (% asset change due to investor allocations/redemptions) was 0.65%, an increase from March and above the last twelve month average.
�Total hedge fund AUM is now 13% below the all-time high set in Q2 2008.
Net investor flow information continues to indicate strong interest for investing directly into hedge funds. April inflows showed the tenth straight month of net allocations and the core rate of growth was the second largest in 2011. The average rate of growth over the last twelve months is 0.40%
Sub-Sector Specific Flows
�Japan fund investor flow data has been mixed, but the majority of data reported to HFN indicate more funds had net investor inflows in April than outflows.
�Commodity, credit arbitrage and macro strategies had the highest rate of allocations in April. Emerging markets, market neutral equity and multi-strategy fund data indicated net redemptions.
�Managers located in developed Europe had the highest rate of allocations in April followed by Asia, then North America.
�Funds with Europe as an investment region also had positive investor flows in April while those focused on Latin America and emerging Europe had net outflows.
Performance Review
Fixed Income (FI) Strategies
�The average return of all fixed income focused strategies was +0.93% in April and +3.30% year-to-date.
�Distressed credit funds performed best in April, +1.77%, and mortgage funds continued to post positive returns, +1.39%.
�Fixed income fund assets rose 1.84% in April to an estimated $684.8 billion. Investors added net $5.7 billion during the month.
Equity (EQ) Strategies
�The average return of all equity focused strategies was +1.11% in April and +2.60% YTD.
�Funds investing in healthcare sector equities had the best returns, +4.60%, followed by those investing in technology stocks, +1.61%. Finance sector funds lagged, but were positive, +0.66%
�Equity fund assets rose an estimated 2.72% to $858.6 billion in April. Investors allocated a net $8.4 billion during the month; a sharp increase from March.
Commodity and Foreign Exchange (FX) Related Strategies
�Broad natural resource commodity strategies were +3.08% in April and +3.56% YTD.
�Funds investing in FX markets had their best month in more than four years, +2.67%, and are +1.61% YTD
�Funds focused on metals markets performed well, +2.82%, as did energy commodity funds (not energy EQ sector), +2.24%. Agri-focused funds lagged, +0.18%, with relatively volatile returns across fund performance.
Summary Analysis
Investor interest in April continued to be above 2010 rates, which has been the case in each of the first four months of 2011, evidence that large investors continue to increase allocations to the industry despite performance lagging equity markets. With May coming to a close and equity markets broadly lower, it appears that for at least one month this year the industry will outperform. Long/short equity strategies have lagged the S&P by a monthly average of 156 basis points this year, an indication of widespread defensiveness. This will likely be to the benefit of several strategies in May, but the reversal of the April trend of a falling U.S. dollar will likely result in losses in macro and CTA strategies.
On May 31, 2011 with 4,117 hedge fund products reporting, the HFN Hedge Fund Aggregate Index was +1.42% in April and +2.79% YTD 2011 while the S&P 500 Total Return Index (S&P) was +2.96% during the month and +9.06% YTD.
Hedge Fund Industry April Highlights:
�Total industry assets rose an estimated 2.26% to $2.607 trillion in April. Performance accounted for the majority of the asset increase and net investor allocations were positive for the tenth consecutive month.
�A falling U.S. dollar and rising energy and precious metals prices resulted in strong performance from foreign exchange and natural resource strategies in April.
�Healthcare funds produced the best equity market sector focused performance in April followed by technology funds. Despite rising energy prices, energy equity sector fund returns were below average.
�Japan focused funds were again negative during the month, the Japan Index was -0.74% in April and -0.66% YTD.
CTA/managed futures and global macro strategies were the primary beneficiaries of the U.S. dollar's sharp decline to other major currencies along with the rise in gold and nearly 30% spike in silver prices. Conversely, falling yields on the U.S. 10 YR note hurt several funds focusing on government bond related strategies. The group was -0.02% in April even with some strong returns from funds focused on EM sovereign credits.
HFN developed the Outlier ratio to determine which sectors are producing high or low returns outside of their normal ranges. Surprisingly, in April, mortgage focused funds had the lowest average ratio despite the HFN Mortgage Index rising +1.49%. Healthcare, CTA, macro, technology and merger arbitrage funds all had above average ratios in April. Convertible and credit arbitrage, along with mortgage strategies all had low figures.
HFN Regional Benchmarks
Emerging market strategies again outperformed developed market focused funds in April, led by those investing in Brazil and China which returned an average of +2.34% and +2.13%, respectively. Russia focused funds fell during the month, -1.54%, but are still the best performing regional classification in 2011, +4.38%.
Japan funds continued to struggle in the aftermath of March's natural disaster falling -0.74% in April, while the Nikkei rebounded +0.97%. Japan funds have lost an average of -5.30% in the last two months, pushing the HFN Japan Index into negative territory for 2011. April was a rare instance for Japan funds to be negative on average when the Nikkei rises. In the last five years this happened only three other times. In each prior occasion the Nikkei was bouncing off of a large loss.
Monthly Asset Flow Estimates
�Total estimated hedge fund assets at the end of April 2011 were $2.607 trillion, an increase of 2.26%, or $57.6 billion from March.
�Performance accounted for an increase of $41.2 billion and investors accounted for a net inflow of $16.5 billion.
�The core rate of growth (% asset change due to investor allocations/redemptions) was 0.65%, an increase from March and above the last twelve month average.
�Total hedge fund AUM is now 13% below the all-time high set in Q2 2008.
Net investor flow information continues to indicate strong interest for investing directly into hedge funds. April inflows showed the tenth straight month of net allocations and the core rate of growth was the second largest in 2011. The average rate of growth over the last twelve months is 0.40%
Sub-Sector Specific Flows
�Japan fund investor flow data has been mixed, but the majority of data reported to HFN indicate more funds had net investor inflows in April than outflows.
�Commodity, credit arbitrage and macro strategies had the highest rate of allocations in April. Emerging markets, market neutral equity and multi-strategy fund data indicated net redemptions.
�Managers located in developed Europe had the highest rate of allocations in April followed by Asia, then North America.
�Funds with Europe as an investment region also had positive investor flows in April while those focused on Latin America and emerging Europe had net outflows.
Performance Review
Fixed Income (FI) Strategies
�The average return of all fixed income focused strategies was +0.93% in April and +3.30% year-to-date.
�Distressed credit funds performed best in April, +1.77%, and mortgage funds continued to post positive returns, +1.39%.
�Fixed income fund assets rose 1.84% in April to an estimated $684.8 billion. Investors added net $5.7 billion during the month.
Equity (EQ) Strategies
�The average return of all equity focused strategies was +1.11% in April and +2.60% YTD.
�Funds investing in healthcare sector equities had the best returns, +4.60%, followed by those investing in technology stocks, +1.61%. Finance sector funds lagged, but were positive, +0.66%
�Equity fund assets rose an estimated 2.72% to $858.6 billion in April. Investors allocated a net $8.4 billion during the month; a sharp increase from March.
Commodity and Foreign Exchange (FX) Related Strategies
�Broad natural resource commodity strategies were +3.08% in April and +3.56% YTD.
�Funds investing in FX markets had their best month in more than four years, +2.67%, and are +1.61% YTD
�Funds focused on metals markets performed well, +2.82%, as did energy commodity funds (not energy EQ sector), +2.24%. Agri-focused funds lagged, +0.18%, with relatively volatile returns across fund performance.
Summary Analysis
Investor interest in April continued to be above 2010 rates, which has been the case in each of the first four months of 2011, evidence that large investors continue to increase allocations to the industry despite performance lagging equity markets. With May coming to a close and equity markets broadly lower, it appears that for at least one month this year the industry will outperform. Long/short equity strategies have lagged the S&P by a monthly average of 156 basis points this year, an indication of widespread defensiveness. This will likely be to the benefit of several strategies in May, but the reversal of the April trend of a falling U.S. dollar will likely result in losses in macro and CTA strategies.
Managed Futures Funds Lead Investable Index Rebound in April
Results were positive across all strategies for the Greenwich Investable Indices in April, driven by strong equity markets. The monthly redemption Composite Index advanced by 1.28% while the quarterly exit Index gained 1.30%. Directional strategies were the best performers as Managed Futures funds gained more than 4%. The Greenwich Long-Short Equity Investable Index also advanced by 1.39% compared to a 2.96% advance in the S&P 500 Total Return Index. Market Neutral strategies continued a successful year as the Arbitrage and Equity Market Neutral Indices gained 0.86% and 0.43%, respectively.
“Despite a guarded approach to mitigating market volatility, most hedge fund strategies continue to capture the majority of upside moves. As expected, Directional strategies were most successful in April although year-to-date figures present a strong case for both absolute return and more market-sensitive strategies in the context of a diversified hedge fund portfolio,” said Clint Binkley, Senior Vice President.
Details here
“Despite a guarded approach to mitigating market volatility, most hedge fund strategies continue to capture the majority of upside moves. As expected, Directional strategies were most successful in April although year-to-date figures present a strong case for both absolute return and more market-sensitive strategies in the context of a diversified hedge fund portfolio,” said Clint Binkley, Senior Vice President.
Details here
Hedge Funds Produce Mixed Results in Volatile May
Hedge funds as measured by the Greenwich Global Hedge Fund Index (“GGHFI”) showed pockets of strength but lost ground on average in May. The GGHFI shed 1.20% compared to global equity returns in the S&P 500 Total Return (-1.13%), MSCI World Equity (-2.45%), and FTSE 100 (-0.89%) equity indices. 36% of constituent funds in the GGHFI ended the month with gains.
“Market Neutral strategies demonstrated their worth in May,” notes Clint Binkley, Senior Vice President. “Economic uncertainty took its toll on equity markets and Directional strategies in general during the month but managers that were less beta sensitive came out ahead. We expect a growing number of funds to decrease their net exposure as a result of recent volatility.”
Hedge Fund Strategy Highlights
- Long-Short Credit and Arbitrage funds post best returns on the month
- Long-Short Equity funds decline less than 1%
- Managed Futures funds suffer from equity and commodity retreat, fall 3.25%
- Long-Short Credit and Distressed Securities funds lead hedge funds on year-to-date basis, up 5.03% and 4.24%, respectively
- Developed Market funds less impacted from global selloff than Emerging Market funds; the Greenwich Composite Regional indices fall by 1.18% and 1.99%, respectively
Strategy Group Summary available here.
The GGHFI is one of the oldest benchmarks of the hedge fund universe. Final Strategy and Regional index results for May will be available in early July, once additional funds have submitted returns. Past performance and indices construction rules for all Greenwich Hedge Fund Indices may be viewed at www.greenwichai.com.
About Greenwich Alternative Investments
Greenwich Alternative Investments, LLC (and its affiliates) is a leading alternative investment firm providing hedge fund indices, industry research, and index-linked products and services to institutional investors worldwide.
“Market Neutral strategies demonstrated their worth in May,” notes Clint Binkley, Senior Vice President. “Economic uncertainty took its toll on equity markets and Directional strategies in general during the month but managers that were less beta sensitive came out ahead. We expect a growing number of funds to decrease their net exposure as a result of recent volatility.”
Hedge Fund Strategy Highlights
- Long-Short Credit and Arbitrage funds post best returns on the month
- Long-Short Equity funds decline less than 1%
- Managed Futures funds suffer from equity and commodity retreat, fall 3.25%
- Long-Short Credit and Distressed Securities funds lead hedge funds on year-to-date basis, up 5.03% and 4.24%, respectively
- Developed Market funds less impacted from global selloff than Emerging Market funds; the Greenwich Composite Regional indices fall by 1.18% and 1.99%, respectively
Strategy Group Summary available here.
The GGHFI is one of the oldest benchmarks of the hedge fund universe. Final Strategy and Regional index results for May will be available in early July, once additional funds have submitted returns. Past performance and indices construction rules for all Greenwich Hedge Fund Indices may be viewed at www.greenwichai.com.
About Greenwich Alternative Investments
Greenwich Alternative Investments, LLC (and its affiliates) is a leading alternative investment firm providing hedge fund indices, industry research, and index-linked products and services to institutional investors worldwide.
World’s Smallest Hedge Funds Increase Assets as Investors Seek ‘New Blood’
Complete article
The world’s smallest hedge funds struggled to raise money in 2010. This year, investors want in.
Funds managing less than $5 billion increased assets by $16.3 billion in the first quarter after adding $10.7 billion of new money in the whole of 2010, according to estimates from Hedge Fund Research Inc. Firms with $500 million to $1 billion of assets had the biggest reversal of fortune, bringing in $4.7 billion in the first three months of the year after $2.8 billion of net outflows in 2010.
“Investors are looking for new talent and new blood,” said Dominic Freemantle, a London-based managing director at Morgan Stanley who helps the firms attract money. “We are definitely starting to see some of the small and mid-sized managers raise decent assets.”
Clients who sought stability in big hedge funds after the collapse of Lehman Brothers Holdings Inc. (LEHMQ) roiled markets three years ago are increasingly looking at smaller firms in a search for better investment returns, clients and consultants say. Smaller firms are also seeking investors at a time when some of the biggest hedge funds have stopped taking money, said Craig Stevenson, a senior investment consultant at Towers Watson & Co. in London...
The world’s smallest hedge funds struggled to raise money in 2010. This year, investors want in.
Funds managing less than $5 billion increased assets by $16.3 billion in the first quarter after adding $10.7 billion of new money in the whole of 2010, according to estimates from Hedge Fund Research Inc. Firms with $500 million to $1 billion of assets had the biggest reversal of fortune, bringing in $4.7 billion in the first three months of the year after $2.8 billion of net outflows in 2010.
“Investors are looking for new talent and new blood,” said Dominic Freemantle, a London-based managing director at Morgan Stanley who helps the firms attract money. “We are definitely starting to see some of the small and mid-sized managers raise decent assets.”
Clients who sought stability in big hedge funds after the collapse of Lehman Brothers Holdings Inc. (LEHMQ) roiled markets three years ago are increasingly looking at smaller firms in a search for better investment returns, clients and consultants say. Smaller firms are also seeking investors at a time when some of the biggest hedge funds have stopped taking money, said Craig Stevenson, a senior investment consultant at Towers Watson & Co. in London...
HEDGE FUND INDUSTRY LEVERAGE DECLINES AS TOTAL CAPITAL REACHES RECORD LEVEL
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Hedge fund industry leverage declined in the last 12 months, according to the HFR Leverage Report, released by Hedge Fund Research, Inc. (HFR). Leverage declined as investor inflows and less volatile performance gains combined to increase global hedge fund industry assets to a record $2.02 trillion.
Average standard leverage decreased across all hedge fund strategies from 1.27 to 1.10 times investment capital, while average margin to equity also declined, falling from 17.13 to 16.98 percent, year over year. The percentage of funds which do not typically utilize leverage rose to approximately one third of all funds, an increase of four percent over last year, while over half of all funds utilize leverage of between one and two times their investment capital.
Also included in the report is historical analysis of hedge funds in an inflationary environment.
Hedge fund industry leverage declined in the last 12 months, according to the HFR Leverage Report, released by Hedge Fund Research, Inc. (HFR). Leverage declined as investor inflows and less volatile performance gains combined to increase global hedge fund industry assets to a record $2.02 trillion.
Average standard leverage decreased across all hedge fund strategies from 1.27 to 1.10 times investment capital, while average margin to equity also declined, falling from 17.13 to 16.98 percent, year over year. The percentage of funds which do not typically utilize leverage rose to approximately one third of all funds, an increase of four percent over last year, while over half of all funds utilize leverage of between one and two times their investment capital.
Also included in the report is historical analysis of hedge funds in an inflationary environment.
CAPITAL IN EMERGING MARKETS HEDGE FUNDS REACHES RECORD LEVEL
Emerging Asia, Russia lead regional asset increases;
Gains in Russia, Latin American funds offset Middle East weakness in 1Q
Hedge fund capital invested in Emerging Markets reached a new record level in 1Q11, as global investors increased exposure to Emerging Asia and Russia. Total assets invested in Emerging Markets hedge funds increased to over $121 billion, surpassing the previous record level of $117 billion set in 2007, according to data released by HFR, the leading provider of hedge fund industry data. The quarterly asset increase of over 6.5 percent includes an inflow of nearly $2.3 Billion in new capital, concentrated primarily in Emerging Asia, as well as $5.1 Billion in performance-based gains, with these concentrated in Russia and Multi-EM regions.
The HFRI Emerging Markets (Total) Index posted a narrow gain of +0.96 percent for 1Q11 and added +1.83 in April to bring 2011 YTD performance to +2.80 percent, effectively navigating early year inflation-sensitive declines through Emerging Asian economies, as well as social and political unrest across Middle East economies. Building on its industry-leading gains in 2010, Russia/Eastern Europe-focused funds continue to lead EM hedge fund performance thus far in 2011, with the HFRI Russia/Eastern Europe Index gaining +8.22 percent YTD through April. The weakest area of EM hedge fund performance has been from funds focused primarily on the Middle East, with the HFRX MENA Index declining -4.34 percent in 1Q11, though this index rebounded +1.4 percent in April, narrowing the YTD loss.
Capital invested in hedge funds focused on Latin America posted the largest percentage increase among all EM regions for Q1, with capital levels rising over 15 percent; the HFRX Latin America Index trailed only Russia on a YTD basis through April, with LatAm gaining +3.6 percent. Emerging Asia continues to represent the largest concentration of EM hedge funds, with nearly 500 funds focused on this region; the HFRX Asia ex-Japan Index gained +2.81 percent in April, offsetting early year weakness to bring Index performance into positive territory for 2011.
“The record level of assets invested in Emerging Market hedge funds represents the latest evidence that global investors continue to exhibit a preference for accessing specialized Emerging Markets exposure via hedge funds,” said Kenneth J. Heinz, President of HFR. “As a direct result of the strategic specialization, sophistication and improved structure of Emerging Market hedge funds, the number of funds located in Brazil, China, Russia, Singapore and UAE all continue to grow, and we expect this trend to continue in 2011 and in coming years.”
Gains in Russia, Latin American funds offset Middle East weakness in 1Q
Hedge fund capital invested in Emerging Markets reached a new record level in 1Q11, as global investors increased exposure to Emerging Asia and Russia. Total assets invested in Emerging Markets hedge funds increased to over $121 billion, surpassing the previous record level of $117 billion set in 2007, according to data released by HFR, the leading provider of hedge fund industry data. The quarterly asset increase of over 6.5 percent includes an inflow of nearly $2.3 Billion in new capital, concentrated primarily in Emerging Asia, as well as $5.1 Billion in performance-based gains, with these concentrated in Russia and Multi-EM regions.
The HFRI Emerging Markets (Total) Index posted a narrow gain of +0.96 percent for 1Q11 and added +1.83 in April to bring 2011 YTD performance to +2.80 percent, effectively navigating early year inflation-sensitive declines through Emerging Asian economies, as well as social and political unrest across Middle East economies. Building on its industry-leading gains in 2010, Russia/Eastern Europe-focused funds continue to lead EM hedge fund performance thus far in 2011, with the HFRI Russia/Eastern Europe Index gaining +8.22 percent YTD through April. The weakest area of EM hedge fund performance has been from funds focused primarily on the Middle East, with the HFRX MENA Index declining -4.34 percent in 1Q11, though this index rebounded +1.4 percent in April, narrowing the YTD loss.
Capital invested in hedge funds focused on Latin America posted the largest percentage increase among all EM regions for Q1, with capital levels rising over 15 percent; the HFRX Latin America Index trailed only Russia on a YTD basis through April, with LatAm gaining +3.6 percent. Emerging Asia continues to represent the largest concentration of EM hedge funds, with nearly 500 funds focused on this region; the HFRX Asia ex-Japan Index gained +2.81 percent in April, offsetting early year weakness to bring Index performance into positive territory for 2011.
“The record level of assets invested in Emerging Market hedge funds represents the latest evidence that global investors continue to exhibit a preference for accessing specialized Emerging Markets exposure via hedge funds,” said Kenneth J. Heinz, President of HFR. “As a direct result of the strategic specialization, sophistication and improved structure of Emerging Market hedge funds, the number of funds located in Brazil, China, Russia, Singapore and UAE all continue to grow, and we expect this trend to continue in 2011 and in coming years.”
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