Credit Suisse has releasef its annual Global Hedge Fund Investor Survey, in which they analysz responses from over 600 institutional investors, representing $1.04 trillion of hedge fund investments, on a number of topics. These include investors’ current sentiment towards the hedge fund industry and their predictions for its growth prospects; their allocations plans across various strategies and regions; their return forecasts for the year ahead; and their views on key new trends and developments in the industry.
The title of this year’s survey, “Finding Direction in Uncertain Terrain”, reflects the quest by hedge fund managers and institutional investors alike for outperformance in the currently challenging and erratic market conditions.
Robert Leonard, Managing Director and Global Head of Capital Services at Credit Suisse commented: “Institutional investors remain positive on hedge funds and on the outlook for further industry growth. They continue to look to hedge funds to generate uncorrelated returns and to reduce overall volatility within their portfolios.”
When respondents were asked to forecast total industry assets at the end of 2012, the average prediction was US$2.13 trillion. This would represent an industry growth rate of 12%, which would come from both performance and new inflows. Investors thus generally intend to remain active in their new allocations to hedge funds this year.
Investors were then asked to forecast which hedge fund strategies will perform best during 2012. The responses were as follows:
_ 27% of respondents forecasted Global Macro as the top performer
_ 19% of respondents forecasted Long/Short Equity as the top performer
_ 18% of respondents forecasted Emerging Markets as the top performer
Respondents also shared their insights into which hedge fund strategies they anticipate allocating capital to during 2012:
_ Global Macro is currently the most sought-after strategy for 2012
_ Commodity Trading Advisors (CTA) is the second most favoured strategy
_ Fixed Income Arbitrage moved up from 15th place last year to 3rd place this year
In terms of geographic preferences, Asia and Emerging Markets have remained at the top of investors’ buy list for a second year running. As developed markets continue to wrestle with debt and deleveraging issues, many investors perceive Asia and Emerging Markets to have relatively stronger growth prospects. North America was the third most frequently mentioned region in this category.
Investors continue to show appetite for new hedge funds that can “check the box” on a number of key requirements. These include pedigree, continuity, differentiation and institutional quality. Over half the respondents indicated that they can invest in a start-up manager with a three-year-plus track record from another fund, but that number drops to only 20% for managers without an explicit track record.
The survey also uncovered a number of other key new industry trends and developments for 2012:
_ Investors have adjusted their target returns expectations for their hedge fund portfolios, to account for the current low interest rate environment and difficult market conditions. The average expectation for returns in 2012 was 8.6%, down from 11% in 2011.
_ Respondents ranked crowded trades/herd behaviour, sovereign default risk and counterparty/credit risk as the three greatest sources of risks facing the hedge fund industry today. Increasing regulatory requirements were also identified by 32% of respondents as having potential for significant impact on the hedge fund industry.
_ Investors expect to see an acceleration in the number of hedge fund consolidations/liquidations this year, predicting that only managers with demonstrated ability to generate uncorrelated alpha and manage risk within an institutional framework will continue to attract assets.
_ Founders’ share classes (featuring discounted fees) have become an increasingly popular way for new hedge funds to attract early-stage capital. Over two-thirds of investors surveyed indicated that they were interested in or already actively invested in founders’ share classes of hedge funds.
_ Investors also reported that, in order to cope with new and pending regulations, many funds have been increasing their legal and compliance staff-count and have hired a Chief Compliance Officer.
Mr Leonard added: “From this year’s survey we can conclude that institutional investors will remain active in making hedge fund allocations, as they consider hedge funds to be an important tool for risk mitigation against the backdrop of ongoing market uncertainty.”
Tuesday, March 27, 2012
Dow Jones Credit Suisse Hedge Fund Index Commentary: February Hedge Fund Performance
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The Dow Jones Credit Suisse Hedge Fund Index finished up 1.61% in February. A new monthly commentary offers insight into hedge fund performance through the month of February. The full report includes an overview of February hedge fund performance, in-depth commentary on individual hedge fund sectors and hedge fund return dispersion statistics for each strategy.
Some key findings from the report include:
Hedge funds, as measured by the Dow Jones Credit Suisse Hedge Fund Index, finished February up 1.61%; with 9 out of 10 strategies in positive territory;
In total, the industry saw estimated inflows of approximately $3.25 billion in February, bringing overall assets under management for the industry to approximately $1.75 trillion; February experience the first month of asset inflows since August 2011;
The Convertible Arbitrage and Managed Futures sectors experienced the largest asset inflows on a percentage basis in February, with inflows of 0.97% and 0.64% from January 2012 levels, respectively;
Directional strategies, such as Long/Short Equity, experienced positive performance for the second month in a row. Managers noted that the market appeared to trade more on fundamentals as stock correlations declined and stock prices reacted in line with post earnings announcements;
Tactical trading managers showed positive performance. Global Macro managers and Managed Futures funds posted gains with the continuation of positive market sentiment driven by further global monetary easing and macroeconomic data coming in above expectations; and
On the relative value front, managers showed positive performance in February. Fixed Income Arbitrage managers posted gains as managers have, in some instances, been able to benefit from the risk-on environment through model convergence trades as volatility compressed over the course of the month.
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The Dow Jones Credit Suisse Hedge Fund Index finished up 1.61% in February. A new monthly commentary offers insight into hedge fund performance through the month of February. The full report includes an overview of February hedge fund performance, in-depth commentary on individual hedge fund sectors and hedge fund return dispersion statistics for each strategy.
Some key findings from the report include:
Hedge funds, as measured by the Dow Jones Credit Suisse Hedge Fund Index, finished February up 1.61%; with 9 out of 10 strategies in positive territory;
In total, the industry saw estimated inflows of approximately $3.25 billion in February, bringing overall assets under management for the industry to approximately $1.75 trillion; February experience the first month of asset inflows since August 2011;
The Convertible Arbitrage and Managed Futures sectors experienced the largest asset inflows on a percentage basis in February, with inflows of 0.97% and 0.64% from January 2012 levels, respectively;
Directional strategies, such as Long/Short Equity, experienced positive performance for the second month in a row. Managers noted that the market appeared to trade more on fundamentals as stock correlations declined and stock prices reacted in line with post earnings announcements;
Tactical trading managers showed positive performance. Global Macro managers and Managed Futures funds posted gains with the continuation of positive market sentiment driven by further global monetary easing and macroeconomic data coming in above expectations; and
On the relative value front, managers showed positive performance in February. Fixed Income Arbitrage managers posted gains as managers have, in some instances, been able to benefit from the risk-on environment through model convergence trades as volatility compressed over the course of the month.
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HEDGE FUND INDUSTRY ACCELERATES INTO 2012 WITH MOST NEW LAUNCHES SINCE 2007
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Liquidations steady as investors and managers position for growth;
Fund performance dispersion falls, Fund of Funds attrition slows
Hedge fund launches in 2011 increased to the highest level since 2007, as investors and managers positioned for 2012 amid intense volatility and macroeconomic uncertainty, reported HFR (Hedge Fund Research Inc.) Hedge fund launches totaled 1,113 in 2011, including 270 in 4Q11, the highest calendar year total since 1,197 funds launched in 2007.
Fund liquidations declined from the previous quarter but rose for the full year, with 190 liquidations in 4Q11 and 775 for the year; the 2011 total represents a narrow increase over the 743 liquidations in 2010.
The total number of funds rose to 9,523 in 2011, while total hedge fund industry capital rose by 3 percent to $2.02 Trillion.
New fund launches in 2011 were concentrated in Equity Hedge and Macro strategies, with 479 and 265 fund launches, respectively; the former is the highest EH launch total since 2006, while the latter is the highest total for Macro since HFR began tracking this in 1996. Equity Hedge also experienced a high rate of liquidations, with 293 EH funds closing, the highest since 651 funds closed in 2008. Attrition in Fund of Hedge Funds declined to a pre-Financial Crisis level; FOF experienced 215 closings in 2011, the fewest liquidations since 2007. By management firm location, slightly more funds were launched in the US than Europe, while liquidations were higher in Europe, with both representing reversals from the prior year.
While the HFRI Fund Weighted Composite Index declined by -5.26 percent in 2011, constituent fund dispersion also narrowed in 2011to the lowest level since 2006, with the compression concentrated in fewer positive outliers. The worst performing decile of the broad based composite declined by -30.7 percent for 2011, while the top decile gained +19.5 percent, implying a top-bottom dispersion of just over 50 percent. This represents a decline from nearly 58 percent in 2010 and over 100 percent in both 2008 and 2009. Last year marked the lowest average performance for the top decile since HFR began tracking this metric in 2000 by a significant margin; the next lowest performance by the top HFRI decile was a gain of +39.2 in 2002, nearly twice the 2011 figure.
Average management fees were unchanged from the prior quarter at 1.57 percent; these declined 1 basis point for the year. Average incentive fees continued to decline, with these falling to 18.71 percent; incentive fees declined 1 basis point over 3Q11 and 24 bps since year end 2010.
“Despite performance volatility and macroeconomic uncertainty in the second half of the year, investors maintained a strong commitment to hedge funds, and fund managers expanded the scope and breadth of strategies offered, making 2011 the strongest year for new launches since the global financial crisis,” said Kenneth J. Heinz, President of HFR.
“While some have suggested that increased regulation may deter new fund launches, many hedge funds are launching not only as a result of increasing investor risk tolerance, but also as a result of these regulatory changes to trading activities and risk oversight at financial institutions. The hedge fund industry has and will continue to expand and innovate to offer more sophisticated and transparent strategies to meet the requirements of institutional investors.”
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Liquidations steady as investors and managers position for growth;
Fund performance dispersion falls, Fund of Funds attrition slows
Hedge fund launches in 2011 increased to the highest level since 2007, as investors and managers positioned for 2012 amid intense volatility and macroeconomic uncertainty, reported HFR (Hedge Fund Research Inc.) Hedge fund launches totaled 1,113 in 2011, including 270 in 4Q11, the highest calendar year total since 1,197 funds launched in 2007.
Fund liquidations declined from the previous quarter but rose for the full year, with 190 liquidations in 4Q11 and 775 for the year; the 2011 total represents a narrow increase over the 743 liquidations in 2010.
The total number of funds rose to 9,523 in 2011, while total hedge fund industry capital rose by 3 percent to $2.02 Trillion.
New fund launches in 2011 were concentrated in Equity Hedge and Macro strategies, with 479 and 265 fund launches, respectively; the former is the highest EH launch total since 2006, while the latter is the highest total for Macro since HFR began tracking this in 1996. Equity Hedge also experienced a high rate of liquidations, with 293 EH funds closing, the highest since 651 funds closed in 2008. Attrition in Fund of Hedge Funds declined to a pre-Financial Crisis level; FOF experienced 215 closings in 2011, the fewest liquidations since 2007. By management firm location, slightly more funds were launched in the US than Europe, while liquidations were higher in Europe, with both representing reversals from the prior year.
While the HFRI Fund Weighted Composite Index declined by -5.26 percent in 2011, constituent fund dispersion also narrowed in 2011to the lowest level since 2006, with the compression concentrated in fewer positive outliers. The worst performing decile of the broad based composite declined by -30.7 percent for 2011, while the top decile gained +19.5 percent, implying a top-bottom dispersion of just over 50 percent. This represents a decline from nearly 58 percent in 2010 and over 100 percent in both 2008 and 2009. Last year marked the lowest average performance for the top decile since HFR began tracking this metric in 2000 by a significant margin; the next lowest performance by the top HFRI decile was a gain of +39.2 in 2002, nearly twice the 2011 figure.
Average management fees were unchanged from the prior quarter at 1.57 percent; these declined 1 basis point for the year. Average incentive fees continued to decline, with these falling to 18.71 percent; incentive fees declined 1 basis point over 3Q11 and 24 bps since year end 2010.
“Despite performance volatility and macroeconomic uncertainty in the second half of the year, investors maintained a strong commitment to hedge funds, and fund managers expanded the scope and breadth of strategies offered, making 2011 the strongest year for new launches since the global financial crisis,” said Kenneth J. Heinz, President of HFR.
“While some have suggested that increased regulation may deter new fund launches, many hedge funds are launching not only as a result of increasing investor risk tolerance, but also as a result of these regulatory changes to trading activities and risk oversight at financial institutions. The hedge fund industry has and will continue to expand and innovate to offer more sophisticated and transparent strategies to meet the requirements of institutional investors.”
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Wednesday, March 21, 2012
GAO Report: Recent Developments Highlight Challenges of Hedge Fund and Private Equity Investing
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Why GAO Did This Study
Millions of Americans rely on defined benefit pension plans for their financial well-being in retirement. Plan representatives are increasingly investing in a wide range of assets, including hedge funds and private equity funds. In recent years, GAO has noted that plans may face significant challenges and risks when investing in these alternative assets. These challenges and ongoing market volatility have raised concerns about how these investments have performed since 2008.
As requested, to better understand plan sponsors’ experiences with these investments, GAO examined (1) the recent experiences of pension plans with investments in hedge funds and private equity, including lessons learned; (2) how plans have responded to these lessons; and (3) steps federal agencies and other entities have taken to help plan sponsors make and manage these alternative investments.
To answer these questions, GAO analyzed available data; interviewed relevant federal agencies and industry experts; conducted follow-up interviews with 22 public and private pension plan sponsors selected among the top 200 plans and contacted in the course of GAO’s prior related work; and surveyed 20 plan consultants, academic experts and other industry experts.
This report reemphasizes a 2008 recommendation that the Secretary of Labor provide guidance to help plans investing in hedge funds and private equity.
What GAO Found
While plan representatives GAO contacted generally stated that their hedge fund and private equity investments met expectations in recent years, a number of plans experienced losses and other challenges, such as limited liquidity and transparency. National data indicated that hedge fund and private equity investments were significantly affected by the 2008-2009 financial crisis, and plans and experts GAO contacted indicated that pension plan investments were not insulated from losses.
Most of the 22 plan representatives GAO interviewed said that their hedge fund investments met expectations overall, despite, in some cases, significant losses during the financial crisis. A few plan representatives, however, expected hedge fund investments to be much more resilient in turbulent markets, and found the losses disappointing. Given the long-term nature of private equity investments, almost all of the representatives were generally satisfied with these investments over the last 5 years. Some plan representatives described significant difficulties in hedge fund and private equity investing related to limited liquidity and transparency, and the negative impact of the actions of other investors in the fund—sometimes referred to as co-investors. For example, representatives from one plan reported they were unable to cash out of their hedge fund investments due to discretionary withdrawal restrictions imposed by the fund manager, requiring them to sell some of their stock holdings at a severe loss in order to pay plan benefits.
Most plans reviewed have taken actions to address challenges related to their hedge fund and private equity investments, including allocation reductions, modifications of investment terms, and improvements to the fund selection and monitoring process.
National data reveal that plans have continued to invest in hedge funds and private equity—for example, one survey revealed that the percentage of large plans investing in hedge funds grew from 47 percent in 2007 to 60 percent in 2010—and most plans GAO contacted have also maintained or increased their allocations to these investments. However, most plans have adjusted investment strategies as a result of recent years’ experiences. For example, three plans have reduced their allocations to hedge funds or private equity. Other plan representatives also took steps to improve investment terms, including more favorable fee structures and enhanced liquidity. However, some plan representatives and experts indicated that smaller plans would likely not be able to take some of these steps.
The Department of Labor has provided some guidance to plans regarding investing in derivatives, but has not taken any steps specifically related to hedge fund and private equity investments. In recent years, however, other entities have addressed this issue. For example, in 2009, the President’s Working Group on Financial Markets issued best practices for hedge fund investors. Further, both GAO and a Department of Labor advisory body have recommended that the department publish guidance for plans that invest in such alternative assets. To date, it has not done so, in part because of a concern that the lack of uniformity among such investments could make development of useful guidance difficult. In 2011, the Department of Labor advisory body specifically revisited the issue of pension plans’ investments in hedge funds and private equity, and a report is expected in early 2012.
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Why GAO Did This Study
Millions of Americans rely on defined benefit pension plans for their financial well-being in retirement. Plan representatives are increasingly investing in a wide range of assets, including hedge funds and private equity funds. In recent years, GAO has noted that plans may face significant challenges and risks when investing in these alternative assets. These challenges and ongoing market volatility have raised concerns about how these investments have performed since 2008.
As requested, to better understand plan sponsors’ experiences with these investments, GAO examined (1) the recent experiences of pension plans with investments in hedge funds and private equity, including lessons learned; (2) how plans have responded to these lessons; and (3) steps federal agencies and other entities have taken to help plan sponsors make and manage these alternative investments.
To answer these questions, GAO analyzed available data; interviewed relevant federal agencies and industry experts; conducted follow-up interviews with 22 public and private pension plan sponsors selected among the top 200 plans and contacted in the course of GAO’s prior related work; and surveyed 20 plan consultants, academic experts and other industry experts.
This report reemphasizes a 2008 recommendation that the Secretary of Labor provide guidance to help plans investing in hedge funds and private equity.
What GAO Found
While plan representatives GAO contacted generally stated that their hedge fund and private equity investments met expectations in recent years, a number of plans experienced losses and other challenges, such as limited liquidity and transparency. National data indicated that hedge fund and private equity investments were significantly affected by the 2008-2009 financial crisis, and plans and experts GAO contacted indicated that pension plan investments were not insulated from losses.
Most of the 22 plan representatives GAO interviewed said that their hedge fund investments met expectations overall, despite, in some cases, significant losses during the financial crisis. A few plan representatives, however, expected hedge fund investments to be much more resilient in turbulent markets, and found the losses disappointing. Given the long-term nature of private equity investments, almost all of the representatives were generally satisfied with these investments over the last 5 years. Some plan representatives described significant difficulties in hedge fund and private equity investing related to limited liquidity and transparency, and the negative impact of the actions of other investors in the fund—sometimes referred to as co-investors. For example, representatives from one plan reported they were unable to cash out of their hedge fund investments due to discretionary withdrawal restrictions imposed by the fund manager, requiring them to sell some of their stock holdings at a severe loss in order to pay plan benefits.
Most plans reviewed have taken actions to address challenges related to their hedge fund and private equity investments, including allocation reductions, modifications of investment terms, and improvements to the fund selection and monitoring process.
National data reveal that plans have continued to invest in hedge funds and private equity—for example, one survey revealed that the percentage of large plans investing in hedge funds grew from 47 percent in 2007 to 60 percent in 2010—and most plans GAO contacted have also maintained or increased their allocations to these investments. However, most plans have adjusted investment strategies as a result of recent years’ experiences. For example, three plans have reduced their allocations to hedge funds or private equity. Other plan representatives also took steps to improve investment terms, including more favorable fee structures and enhanced liquidity. However, some plan representatives and experts indicated that smaller plans would likely not be able to take some of these steps.
The Department of Labor has provided some guidance to plans regarding investing in derivatives, but has not taken any steps specifically related to hedge fund and private equity investments. In recent years, however, other entities have addressed this issue. For example, in 2009, the President’s Working Group on Financial Markets issued best practices for hedge fund investors. Further, both GAO and a Department of Labor advisory body have recommended that the department publish guidance for plans that invest in such alternative assets. To date, it has not done so, in part because of a concern that the lack of uniformity among such investments could make development of useful guidance difficult. In 2011, the Department of Labor advisory body specifically revisited the issue of pension plans’ investments in hedge funds and private equity, and a report is expected in early 2012.
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Thursday, March 15, 2012
Institutional Investor Survey Expectations Remain Strong in 2012 According to Commonfund Investor Outlook Survey™
Portfolios are expected to grow an average 7.6 percent over next five years. Expectations for hedge funds remain steady and investors see big increase in emerging market exposure
Commonfund Forum, currently being held in Orlando, Florida, released its annual survey data today showing that institutional investor expectations for 2012 remain strong. Commonfund conducted its second annual Commonfund Investor Outlook Survey™ which gauges the sentiment of the more the 500 participants at the Commonfund Forum. This year data was collected from 222 institutional investors whose combined assets were $239 billion. Commonfund is a prominent investment manager for institutional investors including pension plans, endowments and foundations, among other investors.
Overall, investor expectations for 2012 are reasonably strong with an average forecast for the S&P 500 Index of 8.3 percent and a median forecast of 9.0 percent. This was almost unchanged from last year’s average forecast of 8.55 percent and median forecast of 9.0 percent. Over a three-year period, performance expectations are still strong with an average annual forecast for the S&P 500 Index over the next three years of 6.8 percent, and 72 percent of responses in the range of 5.0 to 8.0 percent. This was slightly lower than last year’s average forecast of 7.3 percent and median forecast of 7.5 percent.
“The positive expectations for the markets and asset allocations indicate that participants continue to be positive about 2012 reflecting the continued improvement in the U.S. and much of the world economies,” said Verne Sedlacek, President and CEO of Commonfund. “Increased allocations to emerging market equities, natural resources, and commodities extend last year’s strong outlook and the recovery from 2008-2010.”
Only 44 percent expect commodities (as measured by the Dow Jones – UBS Commodities Index) to outperform, compared with 61 percent last year. 30 percent expect hedge funds (as measured by the HFRI Fund Weighted Composite) to outperform, similar to last year.
Bonds increased. Only 37 percent expect high yield bonds to lag the S&P 500 Index compared with 49 percent last year. 84 percent expect the Barclay’s Aggregate Bond Index to underperform the S&P Index over the next three years vs. 91 percent last year (only 3 percent expect it to outperform this year vs. 4 percent last year). Relative to the three-year performance expectation for the S&P 500 Index, 75 percent of respondents expect the MSCI Emerging Markets Index to outperform, a slight drop from 79 percent last year. 22 percent expect the MSCI – ex US (developed equity markets) to outperform this year.
U.S. Treasury Returns to Drop
Survey participants’ expectations for the yield on the 10-year U.S. Treasury note by year-end 2012 were as follows: 33 percent responded between 1.50 percent and 2.00 percent; 49 percent responded between 2.00 percent and 2.50 percent. Average expectations were 2.2 percent and a median 2.25 percent. This contrasts with last year, when 60 percent of respondents saw interest rates rising in 2011 and one in four expecting rates, as measured by the 10-year U.S. Treasury Note, to rise above four percent by December 2011 (versus 3.41 percent as of February month-end).
Portfolio Performance and Tail Risks
In a new question this year, participants reported overall expectations for annual performance of institution’s portfolio over the next 1, 3, and 5 years: an average 7.4 percent and a median 8.0 percent for one year; an average 7.2 percent and a median 7.0 percent over three years; and an average 7.6 percent and a median 7.0 percent over five years. Another new question asked participants about tail risks over the next 3 years. 46 percent said tail risks are increasing; 9 percent said they are decreasing; and 45 percent said they are staying the same.
The most significant tail risks participants reported relative to portfolio performance over the next 3-years include: EU Crisis (32%); Washington gridlock on US debt (23%); Oil price jump (16%); US recession (4%); China slowdown (2%); and Other (24%).
Asset Allocations
Respondents expect to increase allocations over the next 12-18 months most significantly in emerging market equities, natural resources, commodities (similar to last year’s results); as well as venture capital and private equity, and real estate. Unlike last year, this year the largest decreases were forecast for U.S. Treasuries; European equities and cash; other decreases include core U.S. fixed income and Japanese equities.
53 percent of respondents said they would increase allocations to emerging market equities, up from 40 percent last year; while only 1 percent say they would decrease allocations this year. Similarly, 44 percent cited that they would increase allocations to natural resources, up slightly from 43 percent last year. 40 percent would increase allocations to venture capital and private equity; up from 32 percent last year. 37 percent said they would increase allocations to real estate, up from 27 percent last year. 34 percent said they would increase allocations to commodities, down slightly from 37 percent last year. 31 percent said they would increase allocations to distressed debt/high yield, up significantly from 18 percent last year. 28 percent said would increase allocations to hedge funds, up slightly from 27 percent last year. 6 percent said they would increase fixed income allocations, up from 3 percent last year.
Areas of Greatest Concern
Like last year, Commonfund asked participants to rate 11 different factors and asked them to rate their concern about these factors, relative to the management of their assets. Respondents answered along a five-point scale with “1” being “no concern”; “3” being “modest concern” and “5” being “extreme concern.” The top three areas of great concern (based on respondents rating factors as a “4” or a “5”) are:
- Market (investment) volatility: 69 percent
- Shortfalls in meeting investment return objectives: 63 percent, up from only 21 percent last year
- Risk management (broadly defined): 38 percent, the same as last year
In contrast, the factors of least concern to respondents this year (rating of a “1” or a “2) were:
- Deflation: 64 percent
- Portfolio liquidity: 50 percent
- Costs of investment management: 39 percent, down from 43 percent last year
- Structure/effectiveness of investment resources (staff and board): 39 percent, down from 42% last year
- Inflation concerns were 28 percent this year, down from 53 percent last year.
Monday, March 12, 2012
eVestment|HFN Industry Estimates for February 2012
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Hedge funds were broadly positive in February, +1.94%,
and off to their best start in 12 years, since 2000. In
that year, the tech bubble burst and returns for the
industry remained positive for the year, despite the S&P
500 declining -9.10%.
• Early indications show net investor flows were positive
for the second consecutive month in February, firmly
reversing the trend of outflows seen in the second half
of 2011.
• 60% of funds reporting for February indicated positive
net investor flows during the month. 75% of large funds
(>$1 billion) have reported allocations outpaced
redemptions in February.
• Positive performance in February appeared to again be
driven by long-biased equity exposures, particularly to
emerging markets. Funds investing in Brazil and Russia
built upon their strong starts to 2012, while funds
focused on China were positive, but lagged other EM
exposures in February.
• Smaller funds appear to be outperforming their larger
peers in the current environment. Strategies with less
than $1 billion in AUM have returned greater than 100
bps more than those above to begin 2012.
• The aggregate of all equity strategies outperformed
credit and macro funds, but all classifications were
positive. Only short biased funds and FX strategies have
reported negative aggregate returns during the month.
• Mortgage strategies continued to post solid results and
are the best performing fund classification over the last
twelve months.
Complete report
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Hedge funds were broadly positive in February, +1.94%,
and off to their best start in 12 years, since 2000. In
that year, the tech bubble burst and returns for the
industry remained positive for the year, despite the S&P
500 declining -9.10%.
• Early indications show net investor flows were positive
for the second consecutive month in February, firmly
reversing the trend of outflows seen in the second half
of 2011.
• 60% of funds reporting for February indicated positive
net investor flows during the month. 75% of large funds
(>$1 billion) have reported allocations outpaced
redemptions in February.
• Positive performance in February appeared to again be
driven by long-biased equity exposures, particularly to
emerging markets. Funds investing in Brazil and Russia
built upon their strong starts to 2012, while funds
focused on China were positive, but lagged other EM
exposures in February.
• Smaller funds appear to be outperforming their larger
peers in the current environment. Strategies with less
than $1 billion in AUM have returned greater than 100
bps more than those above to begin 2012.
• The aggregate of all equity strategies outperformed
credit and macro funds, but all classifications were
positive. Only short biased funds and FX strategies have
reported negative aggregate returns during the month.
• Mortgage strategies continued to post solid results and
are the best performing fund classification over the last
twelve months.
Complete report
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Saturday, March 10, 2012
HFRI Fund Weighted Composite Index gains +2.14 percent in February
HEDGE FUNDS POST BEST START TO YEAR SINCE 2000
Equity Hedge, Emerging Markets top contributors
Hedge funds posted their strongest start to a calendar year since 2000, with significant contributions from strategy areas which underperformed in 2011, according to data released today by HFR, the leading provider of data, indices and analysis of the global hedge fund industry. The HFRI Fund Weighted Composite Index gained +2.14 percent in February, bringing performance through the first two months of 2012 to nearly 5 percent. The recent gains have nearly recovered the -5.26 percent decline from 2011, a year in which total hedge fund industry capital rose by 3 percent to $2.02 Trillion.
Equity Hedge funds have had the most significant contribution to HFRI performance in 2012, with the HFRI Equity Hedge Index gaining +6.9 percent through February . Gains have been broad-based across Equity Hedge sub-strategies, including Fundamental Growth, Value and Energy, with the only Short Bias funds detracting from gains.
Positive performance in 2012 has been broad-based across all main strategies, with Event Driven, Relative Value Arbitrage and Macro also posting gains in early 2012.
Equity, M&A and credit-sensitive strategies have posted strong gains, with the HFRI Event Driven Index gaining +1.9 percent in February (+4.6 percent YTD) with significant positive contributions from Activist and Special Situations hedge fund strategies. Similarly, fixed income-based Relative Value Arbitrage funds gained +1.7 percent in February (+3.6 percent YTD) as spread tightening and strong liquidity contributed to Arbitrage gains. Macro funds have also posted gains despite the volatile commodity and trend following environment. The HFRI Macro Index, which gained +1.2 percent in February, has gained +2.4 percent YTD despite declines across most commodity focused hedge funds. Systematic, trend following Macro funds gained +1.1 percent in February and have gained +1.5 percent for 2012.
Hedge funds investing in Emerging Markets have also posted strong gains, with the HFRI Emerging Markets (Total) Index gaining +4.3 percent in February and +9.3 percent through the first two months of 2012. While performance has been strong across all Emerging Markets regions, the strongest gains have been in funds investing in Russia and Eastern Europe, gaining +12.7 percent through early 2012.
“Hedge fund performance through early 2012 has benefitted from improvement or total reversal of the trends, sentiment and volatility which contributed to the challenging environment in 2011,” said Kenneth J. Heinz, president of HFR. “While many of the macroeconomic risks remain salient in the current environment, fundamental and convergence oriented themes and positions have gained traction on improvements and optimism across US and European economic outlooks. While equity market volatility may rise from early 2012 subdued levels, hedge funds are well positioned in the current environment to opportunistically adjust exposures and generate gains across multiple asset classes globally in 2012.”
Equity Hedge, Emerging Markets top contributors
Hedge funds posted their strongest start to a calendar year since 2000, with significant contributions from strategy areas which underperformed in 2011, according to data released today by HFR, the leading provider of data, indices and analysis of the global hedge fund industry. The HFRI Fund Weighted Composite Index gained +2.14 percent in February, bringing performance through the first two months of 2012 to nearly 5 percent. The recent gains have nearly recovered the -5.26 percent decline from 2011, a year in which total hedge fund industry capital rose by 3 percent to $2.02 Trillion.
Equity Hedge funds have had the most significant contribution to HFRI performance in 2012, with the HFRI Equity Hedge Index gaining +6.9 percent through February . Gains have been broad-based across Equity Hedge sub-strategies, including Fundamental Growth, Value and Energy, with the only Short Bias funds detracting from gains.
Positive performance in 2012 has been broad-based across all main strategies, with Event Driven, Relative Value Arbitrage and Macro also posting gains in early 2012.
Equity, M&A and credit-sensitive strategies have posted strong gains, with the HFRI Event Driven Index gaining +1.9 percent in February (+4.6 percent YTD) with significant positive contributions from Activist and Special Situations hedge fund strategies. Similarly, fixed income-based Relative Value Arbitrage funds gained +1.7 percent in February (+3.6 percent YTD) as spread tightening and strong liquidity contributed to Arbitrage gains. Macro funds have also posted gains despite the volatile commodity and trend following environment. The HFRI Macro Index, which gained +1.2 percent in February, has gained +2.4 percent YTD despite declines across most commodity focused hedge funds. Systematic, trend following Macro funds gained +1.1 percent in February and have gained +1.5 percent for 2012.
Hedge funds investing in Emerging Markets have also posted strong gains, with the HFRI Emerging Markets (Total) Index gaining +4.3 percent in February and +9.3 percent through the first two months of 2012. While performance has been strong across all Emerging Markets regions, the strongest gains have been in funds investing in Russia and Eastern Europe, gaining +12.7 percent through early 2012.
“Hedge fund performance through early 2012 has benefitted from improvement or total reversal of the trends, sentiment and volatility which contributed to the challenging environment in 2011,” said Kenneth J. Heinz, president of HFR. “While many of the macroeconomic risks remain salient in the current environment, fundamental and convergence oriented themes and positions have gained traction on improvements and optimism across US and European economic outlooks. While equity market volatility may rise from early 2012 subdued levels, hedge funds are well positioned in the current environment to opportunistically adjust exposures and generate gains across multiple asset classes globally in 2012.”
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