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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
Tuesday, November 29, 2011
Wednesday, November 23, 2011
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.
Monday, November 21, 2011
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.
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).
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).
Friday, November 18, 2011
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.
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.”
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.
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 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.
Friday, November 11, 2011
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.
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.
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 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.
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.
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.
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.
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
Ω
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
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
Thursday, November 10, 2011
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
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
Ω
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.”
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.”
Monday, November 7, 2011
Emerging Hedge Fund and CTA Managers Still in Positive Territory
Ω
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.
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.
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