Hedge funds down 0.32% in August amid uncertainty in global markets

Hedge funds witnessed slightly negative returns in August amid increased risk aversion in global markets during the month. The Eurekahedge Hedge Fund Index was down 0.32% during the month, outperforming global stock indices as the MSCI World Index declined by 2.26% in August.

Key highlights for August 2013:

- Global hedge fund AUM declined by more than US$6 billion in August
- Launch activity picks up pace in 2013 with more than 500 funds launched globally July year-to-date
- Hedge funds across major regions outperformed underlying markets in August
- Distressed debt investing remains the best performing strategy in 2013, up 10% as at end-August
- Japanese hedge funds outperformed the Nikkei 225 for the fourth consecutive month, up 18.82% year-to-date

At 2013 year-to-date, Eurekahedge is tracking more than 600 funds that have delivered over 15% and 200 funds that are up more than 30%

Regional Indices

Risk aversion returned to global markets in August driven by a host of factors. The increased likelihood of the United States waging another war in the Middle East, weakening economic situation in emerging markets and continued concerns of QE tapering by the US Federal Reserve (Fed) were the main drivers of the negative market sentiment during the month. Some of the negativity was offset by improving global economic data as the Eurozone emerged from recession and China PMI numbers also displaying positive trends.

Returns were mixed among the various regional mandates with Latin American and North America hedge funds delivering the strongest returns. The Eurekahedge Latin American Hedge Fund Index gained 0.48% in August mostly due to strong returns posted by Brazil-focused funds, which were up on the back of a strong rebound in the Bovespa (up 3.68%). Managers’ holdings were buoyed by surprisingly strong GDP numbers for 2Q 2013 and currency intervention program announced by the Central Bank of Brazil. North American managers outperformed the S&P 500, which declined 3.13% in August. A number of managers had indicated net short positions for August, amid expectations of an announcement of QE-tapering by the Fed, which helped them to post positive returns during the month.

Asian hedge funds outperformed the underlying markets once again, delivering healthy returns amid broadly negative trends in underlying market indices. Managers investing in Asia ex-Japan were up 0.13% while the MSCI Asia ex-Japan index declined 1.22% in August. Japan-focused hedge funds outperformed the underlying markets for the fourth consecutive month, gaining 0.11% while the Nikkei 225 was down 2.04% and the Tokyo Topix declined by 2.27% during the month.

Regional Indices

August
2013*

2013
Returns

2012
Returns

Eurekahedge North American Hedge Fund Index

0.35

5.46

7.93

Eurekahedge European Hedge Fund Index

-0.57

3.11

6.94

Eurekahedge Eastern Europe & Russia Hedge Fund Index

-2.30

-6.96

6.31

Eurekahedge Japan Hedge Fund Index

0.11

18.82

5.97

Eurekahedge Emerging Markets Hedge Fund Index

0.01

0.82

11.28

Eurekahedge Asia ex-Japan Hedge Fund Index

0.13

3.73

12.32

Eurekahedge Latin American Hedge Fund Index

0.48

-0.67

11.32

Strategy Indices

The various strategic indices saw mixed returns with event driven hedge funds posting the strongest gains of 0.95% as managers found various opportunities in a month where markets were driven by news flow. The Eurekahedge Event Driven Hedge Fund Index is up 5.70% August 2013 year-to-date. Distressed debt hedge funds were up 0.35% in the month, outperforming the high-yield sector in August. The BofA Merrill Lynch High Yield Index lost 0.62% in August. Macro investing funds and CTA/managed futures funds delivered the largest losses during the month of 0.85% and 0.79% respectively. Most of these funds invest with a global mandate and the negative returns posted by them dragged the main Eurekahedge index into negative territory for the month. A number of managers reported losses from emerging markets and the fx sector. Trend following strategies were negative during the month amid reversals in equities and some commodities while funds employing short-term systematic strategies delivered some gains.

Strategy Indices

August
2013*

2013
Returns

2012
Returns

Eurekahedge Arbitrage
Hedge Fund Index

0.20
4.22
6.66
Eurekahedge CTA/Managed
Futures Hedge Fund Index

-0.79
-3.03
1.37
Eurekahedge Distressed Debt Hedge Fund Index

0.35
10.00
14.02
Eurekahedge Event Driven Hedge Fund Index

0.92
5.70
8.93
Eurekahedge Fixed Income Hedge Fund Index

-0.25
3.22
11.21
Eurekahedge Long/Short Equities Hedge Fund Index

-0.21
7.02
8.09
Eurekahedge Macro Hedge Fund Index

-0.85
0.09
2.98
Eurekahedge Multi-Strategy Hedge Fund Index

0.04
2.55
7.81
Eurekahedge Relative Value Hedge Fund Index

-1.18
2.28
10.89


Mizuho-Eurekahedge Indices

August
2013*

2013
Returns

2012
Returns

Mizuho-Eurekahedge Index - USD

-1.41
0.67
5.93
Mizuho-Eurekahedge TOP 100 Index - USD

-1.59
0.36
6.46
Mizuho-Eurekahedge TOP 300 Index - USD

-1.62
0.42
5.99


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 funds up by 1.02% in July, 70% of funds up

August 2013 Eurekahedge Report:

· Hedge funds up by 1.02% in July, with 70% of reporting funds delivering positive returns during the month

· Funds of hedge funds outperformed single managers so far in 2013, up 3.83% July 2013 year-to-date versus 3.54%

· Japanese hedge funds outperformed the Nikkei 225 for the third consecutive month, gaining 18.43% as at end-July 2013

· As at end-July 2013, Eurekahedge is currently tracking more than 550 funds that have delivered over 15%, 300 funds that are up more than 20% and 100 funds up more than 30%

· Assets under management increased by US$15.1 billion in July and currently stand at US$1.89 trillion

· CTA/managed futures funds in negative territory for the year, down 2.27% year-to-date

Performance update

Hedge funds returned to their winning ways in July as global markets bounced back from a retreat in June amid positive announcements by central banks. The Eurekahedge Hedge Fund Index was up 1.02%[1] during the month and the MSCI World Index[2] was up by 4.83% in July.

July witnessed rallies in global markets which overcame the speculation about the slowdown in the US Federal Reserve's bond-buying program. Although Japanese equities finished lower for the third consecutive month, positive indications on accommodative monetary policy from the US as well as the European Central Bank were supportive for most global indices. Healthy Q2 corporate earnings from the US also helped to drive the upward momentum during the month.

July 2013 and June 2013 returns across regions






All major hedge fund investment regions, witnessed positive returns during the month. The Eurekahedge Asia ex Japan Hedge Fund Index saw the strongest gains amongst all regional mandates – up 1.93%, outperforming the MSCI Asia ex-Japan Index[3] which was up 1.84% in July. North American hedge funds posted gains of 1.44% during the month as the S&P500 surged 4.95% in July on the back of upbeat corporate earnings, Fed announcements as well as positive macroeconomic data.

European hedge funds also posted healthy returns in July, gaining 1.34%. Trends in the regional markets were similar to those in America with European bourses taking cue from central bank announcements. The DAX was up 3.98% in July while the CAC and the FTSE 100 gained 6.79% and 6.53% respectively.

Japanese hedge funds outperformed the underlying markets for the third consecutive month, gaining 0.93% despite declines in the Tokyo Topix (down 0.19%) and the Nikkei 225 (down 0.07%). Japanese equities were pushed into negative territory in July as the yen appreciated against both the dollar and the euro while corporate earnings were also disappointing. Japan focused managers have outperformed their counterparts in other regions in 2013, the Eurekahedge Japan Hedge Fund Index is up 18.43% July year-to-date.

2013 year-to-date returns across regions




Mizuho-Eurekahedge Asset Weighted Index

The asset weighted Mizuho-Eurekahedge Index was up 1.18% in July as the largest constituents of the index, which are some of the largest hedge funds in the world, posted strong performance during the month on the back of short volatility positions. The best performance in July was delivered by a globally investing special situations fund while the worst performance was posted by a fund focused on negative fat tail events.

Index constituents investing globally posted the strongest returns during the month while Asian and emerging markets mandated funds underperformed the main index. Overall, equity focused funds were the best performers in July, in the environment of strongly rallying markets, and remain ahead in the year-to-date measure. The Mizuho-Eurekahedge Long Short Equities Index is up 4.9% July year-do-date.



Asset flows update

Hedge funds were back in the black in July as global markets swung upwards on the back of reassuring announcements from the US and European central banks. The Eurekahedge Hedge Fund Index gained 1.02%[4] during the month bringing its year-to-date return to 3.54%. The MSCI World Index was up by 4.41%[5] during the month.

Total assets under management (AUM) increased by US$15.1 billion during the month, bringing the size of the industry to US$1.89 trillion. Most of the increase in total assets came from positive performance in July as managers gained US$10.1 billion over the course of the month. The industry also witnessed net positive asset flows of US$5.0 billion.

Hedge funds bounce back from lull to deliver winning returns in July

Hedge funds returned to their winning ways in July as global markets bounced back from a retreat in June. The Eurekahedge Hedge Fund Index was up 0.90% during the month, the MSCI World Index was up by 4.83% in July.

Key highlights for July 2013:

- Hedge funds up by 0.90% in July, with 70% of reporting funds delivering positive returns during the month
- Funds of hedge funds outperformed single manager funds in July, up 0.98% and remain ahead year-to-date
- Japanese hedge funds outperformed the Nikkei 225 for the third consecutive month, up 18.63% as at end-July 2013
- Hedge funds witnessed positive asset flows in July; net allocations for the year currently stand at US$75 billion
- As at end-July 2013, Eurekahedge is currently tracking more than 550 funds that have delivered over 15%, 300 funds that are up more than 20% and 100 funds up more than 30%

Regional Indices

July witnessed rallies in global markets which overcame the speculation about the slowdown in the US Federal Reserve’s bond-buying program. Although Japanese equities finished lower for the third consecutive month, positive indications on accommodative monetary policy from the US as well as the European Central Bank were supportive for most global indices. Healthy Q2 corporate earnings from the US also helped to drive the upward momentum during the month.

All major hedge fund investment regions, witnessed positive returns in July. The Eurekahedge Asia ex Japan Hedge Fund Index saw the strongest gains among all regional mandates - up 1.97%, outperforming the MSCI Asia ex-Japan Index3 which was up 1.84% in July. North American hedge funds posted gains of 1.21% during the month as the S&P 500 surged 4.95% in July on the back of upbeat earnings, Fed announcements as well as positive macroeconomic data. Japanese hedge funds outperformed the underlying markets for the third consecutive month, gaining 1.10% despite declines in the Tokyo Topix (down 0.19%) and the Nikkei 225 (down 0.07%). Japanese equities were pushed into negative territory in July as the Yen appreciated against the dollar and the euro while corporate earnings were also disappointing.



Strategy Indices

Most strategies finished the month in positive territory with the exception of CTA/managed futures funds. The Eurekahedge Long Short Equities Hedge Fund Index saw the strongest gains of 1.95% in July, as most global equity markets rallied with the S&P500, FTSE100 and Hang Seng climbing 4.95%, 6.53% and 5.19% respectively. Event driven funds were up 1.54% as the strong IPO and M&A volume in 2013 continued to provide various opportunities for the funds. Distressed debt funds delivered positive returns for yet another month and are up 9.02% year-to-date. The Eurekahedge CTA/Managed Futures Index was the only strategy which saw negative returns of 0.61% in July and 2.12% year-to-date as systematic traders with a global mandate suffered losses. North American CTA/managed futures managers fared relatively better with discretionary strategies witnessing gains of 1.16% in the month.

Hedge funds Assets under management declined by US$21 billion in June: Eurekahedge

• Assets under management declined by US$21 billion in June and currently stand at US$1.89 trillion

• Launch activity picks up with more than 300 funds launched so far in the year

• Eurekahedge is currently tracking more than 500 funds that have delivered over 15% year-to-date and 250 funds that are up by over 20% year-to-date

• Distressed debt funds end 11-month winning run after gaining 21% from June 2012 to May 2013

• CTA/ managed futures funds in negative territory for the year, down 1.35% year-to-date

• Updated figures for May show that the industry grew by US$28 billion during the month

• AUM of North American hedge funds currently at US$1.29 trillion, expected to cross historical high of US$1.3 trillion by end June

• North American and fixed income hedge funds witness largest performance-based declines in almost 2 years

• Hedge funds post largest monthly loss in one year; long/short equity funds end twelve month winning streak


Performance update

Hedge funds recorded negative returns in June ending their seven month winning run, as global markets witnessed broad based declines during the month. The Eurekahedge Hedge Fund Index was down 1.45% in June, outperforming most major underlying markets as the MSCI AC World Index declined 3.10%.

June witnessed some heightened risk aversion in global markets amid slowing economic growth in China and the US Federal Reserve’s indications that it might scale back its bond buying program. Most major equity markets ended the month in negative territory although market fears regarding a disruption to global economic recovery were somewhat allayed near the month-end as the Fed clarified that any tightening of the monetary policy would be hinged upon solid job creation in the US labour market.

June 2013 and May 2013 returns across regions




The S&P 500 index was down 1.50% in June while the FTSE100 and Hang Seng index were down 5.58% and 7.10% respectively. Asia ex-Japan markets were the worst hit as lacklustre manufacturing data from China continued the flow of dreary macroeconomic numbers from China. Japanese stocks proved to be more resilient compared to their counterparts - with the Nikkei 225 and Tokyo Topix down 0.71% and 0.17% respectively. Towards the end of the month, market reaction to the US Federal Reserve’s indicated framework was downplayed with some positive announcements while strong US macroeconomic data and the ECB’s reiteration of its commitment to a loose monetary policy regime added a further confidence to the markets.

With the exception of Japan, all regional mandates ended the month in negative territory with Asia ex Japan focused hedge funds seeing the largest decline. The Eurekahedge Asia ex Japan Hedge Fund Index was down 4.59% as lacklustre economic indicators from China continued to flow in while the mid-month credit crunch, which saw the SHIBOR (Shanghai Interbank Offered Rate) shoot up to 12% further drained market sentiment. The Shanghai A Share index was down 13.9% for the month with a similar picture emerging in the rest of the region as both the Hang Seng and the Kospi index were down 7.1% and 6.9% respectively. The MSCI Asia ex Japan Index was down by 6.75% for the month.

The seven month winning streak of North American hedge funds also came to an end as the Eurekahedge North American Hedge Fund Index was down 0.21% (up 3.95% YTD) – a significant outperformance to the S&P 500 which declined 1.50%. The Eurekahedge European Hedge Fund Index declined 1.13% during the month, making it the third month of negative returns this year for the regional managers. The Eurekahedge Japan Hedge Fund Index was up 0.03% for the month, bringing its year-to-date returns at an enviable 17.25%. While Prime Minister Abe outlined the ‘3rd arrow’ of his economic policy, it did not do much to boost the market and funds with low long exposures were the ones that performed well during the month while some managers with exposure to transport and industrials also reported gains.


Mizuho-Eurekahedge Asset Weighted Index

The asset weighted Mizuho-Eurekahedge Index was down 2.13% in June as the largest constituents of the index underperformed. The top 15 constituents of the index, which include some of the largest hedge funds in the world, were all in negative territory for the month regardless of strategy and assets traded. Even though some of the large funds are focused on volatility trading, which was up during the month, the negative performance of these funds indicates a disconnect between fundamentals and market performance, which was highlighted in June by the decline in US equity markets following positive macroeconomic numbers.

Index constituents focused on Asia Pacific also witnessed strong declines as the Mizuho-Eurekahedge Asia Pacific Index fell 3.69% in June. Meanwhile emerging markets focused funds also continued their dismal performance and the Mizuho-Eurekahedge Emerging Market index declined 3.98% in June bringing its year-to-date return to -2.48%. It is pertinent to note here that the Brazilian real has plummeted 7.33% against the US dollar year-to-date as the world’s sixth largest economy slows down on the back of falling commodity prices.


Asset flows update

Hedge funds witnessed negative returns in June, bringing an end to their seven month winning streak since November 2012. The Eurekahedge Hedge Fund Index was down 0.69% during the month as global markets reverted to ‘risk-off’ mode amid speculation that the US Federal Reserve will slow down its asset purchase program. The MSCI World Index was down by 3.10 % during the month.

Total assets under management (AUM) declined by US$21 billion during the month, bringing the size of the industry to US$1.89 trillion. Most of the negative impact on total assets came from negative performance in June as managers lost US$18.84 billion over the course of the month. The industry also witnessed net negative asset flows of US$2.12 billion during the month.

Hedge funds end 7 month winning streak, down 1.47%

Hedge funds recorded negative returns in June ending their seven month winning run, as global markets witnessed broad based declines during the month. The Eurekahedge Hedge Fund Index was down 1.47% in June, outperforming the MSCI World Index which lost by 3.10% during the month. Key highlights for June 2013: - Hedge funds witnessed first losing month of the year, down 1.47% in June 2013 - Japanese hedge funds outperformed underlying stocks, up by 0.15% in June and 17.38% year-to-date - Launch activity picks up with more than 300 funds launched so far in the year - Distressed debt funds end 11-month winning run after gaining 21% from June 2012 to May 2013 - CTA/Managed Futures funds in negative territory for the year, down 1.35% year-to-date Regional Indices June witnessed a continuation of downside momentum from the end of May as markets reacted adversely to speculation about a slowdown in the FED’s bond buying operations. The S&P 500 index was down 1.50% while the FTSE100 and Hang Seng index were down 5.58% and 7.10% respectively. Asia ex-Japan markets were the worst hit as lacklustre manufacturing data from China continued the flow of dreary macroeconomic numbers from China. Japanese stocks proved to be more resilient compared to their counterparts - with the Nikkei 225 and Tokyo Topix down 0.71% and 0.17% respectively. Towards the end of the month, market reaction to the US Federal Reserve’s indicated framework was downplayed as both the scale and pace of the slowdown in asset repurchase is contingent upon the US economic recovery which is still far from complete. A further boost of confidence was added to the markets as the European Central Bank re-affirmed the continuation of its loose monetary policy. All major hedge fund investment regions, with the exception of Japan, finished in negative territory for the month. The Eurekahedge Asia ex-Japan Hedge Fund Index saw the largest decline among all regional mandates, down by 4.63%. It still managed to outperform the underlying markets as the MSCI Asia Ex Japan Index dropped by 6.75% for the month. The seven month streak of positive returns for North American hedge funds also came to an end as the Eurekahedge North American Hedge Fund Index was down 0.10% (up 4.07% YTD) – a significant outperformance to the S&P 500 which declined 1.50%. European hedge funds saw another month of dismal returns this year with the Eurekahedge European Hedge Fund Index down 1.16%. In contrast, the Eurekahedge Japan Hedge Fund Index was up 0.15% for the month, bringing its year-to-date returns at an enviable 17.38%. While Prime Minister Abe outlined the ‘3rd arrow’ of his economic policy, it did not do much to boost up the market and funds with low long exposures were the ones that performed well during the month while some managers with exposure to transport and industrials also reported gains. Strategy Indices All hedge fund strategies yielded negative returns in June. Multi-strategy hedge funds were the worst performer for the month with a loss of 2.20%, followed by long/short equities (down 1.66%) as the global equity markets witnessed broad-based declines. CTA/managed futures posted the second consecutive month of negative returns, down by 1.14% in June and 1.35% year-to-date. The S&P GSCI precious metals total return index fell 12.21% during the month while CTA managers also suffered losses in equity and bond futures. 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.

European hedge fund sector: 7th consecutive month of positive returns

- Hedge funds witnessed 5th consecutive month of net allocations & 7th consecutive month of positive returns – up 4% May year-to-date - Total asset flows for 2013 currently stand at US$56.9 billion - Asia ex-Japan hedge funds outperformed underlying markets for three consecutive months - Eurekahedge is currently tracking almost 500 funds that have delivered more than 15% year-to-date and more than 250 funds that are up more than 20% year-to-date - Distressed debt funds extend winning streak to 11 consecutive months, gaining 22.68% since end-June 2012 - CTA/managed futures funds declined 1.81% in May 2013 Performance update Hedge funds witnessed the seventh consecutive month of positive returns in May amid mixed returns in global markets. The Eurekahedge Hedge Fund Index was up 0.32%[1] during the month, while the MSCI World Index[2] declined by 0.45% in May. May started off on a good note with positive economic data from the US, leading to rallies in global equity markets, specifically in North America where market indices reached all-time highs. The US dollar strengthened against most major currencies, going above 100 level against the Japanese yen for the first time since 2009. The positive sentiment turned mid-month amid weak manufacturing numbers from China and uncertainty regarding the withdrawal of the US Federal Reserve’s asset purchase program. May 2013 and April 2013 returns across regions Most major hedge fund investment regions delivered positive returns May, with Asia ex-Japan hedge funds reporting the strongest returns during the month. The managers outperformed the market for the third consecutive month gaining 2.04% in May while the MSCI Asia Ex Japan Index[3] was down 4.35% - the largest returns were posted by funds focused on Greater China, up 4% in May. The Eurekahedge Japan Hedge Fund Index was down 0.15% in May, bringing its year-to-date return to 17.68%, and ending the eight-month winning streak of Japan focused hedge funds. The month’s return represents an outperformance by the managers as the Nikkei 225 declined 0.62% while the Tokyo Topix was down 2.52% during May. Japanese markets witnessed some volatility during the month as the Nikkei fell 7.3% in a single day, amid concerns about US stimulus, before rallying at the month end after some positive announcements from the Japanese central bank. The Eurekahedge North American Hedge Fund Index was up 1.06% in May bring it’s year-to-date return to 4.46%. The S&P 500 was up 2.08% in May but witnessed a mid-month trend reversal, declining to 1630 after reaching an intra-day high of 1687 in the fourth week of May. This trend was also witnessed across European bourses, however most European indices finished the month higher holding on to gains generated after the ECB’s rate cut. The Eurekahedge European Hedge Fund Index was up 0.90% during the month. Mizuho-Eurekahedge Asset Weighted Index The asset weighted Mizuho-Eurekahedge Index was down 0.89% in May as some of the largest constituents of the index underperformed. Since the Mizuho-Eurekahedge Index is US dollar denominated, during months of strong US dollar gains, the index results include the currency conversion loss for funds that are denominated in other currencies – hence the negative returns for the index. Adding to the currency conversion loss were a few large CTA/managed futures and macro investing funds which posted negative returns for the month. The largest returns in May were delivered by funds focused on the mainland China equities. Among the main regional mandates only Asia ex-Japan managers posted flat-to-slightly-positive returns. Asset flows update Hedge funds posted marginally positive returns in May amid mixed returns in global markets. The Eurekahedge Hedge Fund Index was up 0.32%[4] during the month as some risk aversion returned to the markets leading to mid-month trend reversals. The MSCI World Index was down by 0.45%[5] during the month. Total assets under management (AUM) increased by US$3.1 billion during May, bringing the size of the industry to US$1.88 trillion. Impact of performance on total assets was slightly negative in May as managers lost US$1.5 billion over the course of the month. On the other hand net flows were positive for the fifth month running with US$4.6 billion in net allocations.

Hedge funds attract US$50 billion in five months

Hedge funds witnessed the seventh consecutive month of positive returns in May amid mixed returns in global markets. The Eurekahedge Hedge Fund Index was up 0.20% during the month, while the MSCI World Index was down 0.45% in May. Key highlights for May 2013: - Hedge funds witnessed the 5th consecutive month of net allocations and 7th consecutive month of positive returns - up 3.89% year-to-date - Total asset flows for 2013 currently stand at US$50 billion with total size of the industry at US$1.87 trillion - Asia ex-Japan hedge funds outperformed underlying markets for three consecutive months - up 3.26% since end-February - Eurekahedge is currently tracking almost 500 funds that have delivered more than 15% year-to-date and 250 funds that are up by over 20% year-to-date - Distressed debt funds extended winning streak to 11 consecutive months, gaining 21% since end-June 2012 - CTA/managed futures funds declined by 1.69% in May 2013 Regional Indices May started off on a good note with positive economic data from the US, leading to rallies in global equity markets, specifically in North America where market indices reached all-time highs. The US dollar strengthened against most major currencies, going above 100 level against the Japanese yen for the first time since 2009. The positive sentiment turned mid-month amid weak manufacturing numbers from China and uncertainty regarding the withdrawal of the US Federal Reserve’s asset purchase program. Most major hedge fund investment regions delivered positive returns in May, with Asia ex-Japan hedge funds reporting the strongest returns during the month. The managers outperformed the market for the third consecutive month gaining 2.35% in May while the MSCI Asia Ex Japan Index was down 4.35% - the largest returns posted by funds focused on Greater China, up 4% in May. The Eurekahedge Japan Hedge Fund Index grew 0.42% in May, bringing its year-to-date return to 18.34% and extending their winning run to the ninth month making it the longest winning streak on record for Japanese funds. The month’s return represents an outperformance by the managers as the Nikkei 225 declined 0.62% while the Tokyo Topix was down 2.52% during May. The Japanese markets witnessed some volatility during the month as the Nikkei fell 7.3% in a single day, amid concerns about US stimulus, before rallying at the month end after some positive announcements from the Japanese central bank. The Eurekahedge North American Hedge Fund Index was up 1.06% in May bringing its year-to-date return to 4.46%. The S&P500 was up 2.08% in May but witnessed a mid-month trend reversal, declining to 1630 after reaching an intra-day high of 1687 in the fourth week of May. This trend was also witnessed across European bourses, however most European indices finished the month higher holding on to gains generated after the ECB’s rate cut. The Eurekahedge European Hedge Fund Index grew 0.83% during the month. Strategy Indices Returns were mixed among the different strategic indices, with distressed debt hedge funds posting the strongest gains of 1.87%. Distressed debt managers have witnessed eleven straight months of positive returns, gaining 21% since end-June 2012. The distressed debt sector gained earlier in the month from the positive sentiment around global economic data while the ECB rate cut triggered rallies in the European distressed bonds sector, but the increased risk aversion at the end of the month led to some losses. The BofA Merrill Lynch High Yield Index was down 0.43% in May. CTA/managed futures funds posted the largest negative returns during the month, declining by 1.69% on average. Trend-followers suffered due to the reversal in market sentiment mid-month, although some short-term systematic funds witnessed some gains. A number of managers also reported losses from the energy and precious metals sector. On the other hand some managers investing in FX delivered positive returns gaining from short AUD/USD positions.

New Dow Jones Credit Suisse Hedge Fund Index Commentary Offers Insight into July Hedge Fund Performance

The Dow Jones Credit Suisse Hedge Fund Index finished up 1.42% in July. A new monthly commentary offers insight into hedge fund performance through the month of July. Some key findings from the report include:



Hedge funds, as measured by the Dow Jones Credit Suisse Hedge Fund Index, finished July up 1.42%, with 8 out of 10 strategies in positive territory;

In total, the industry saw estimated outflows of approximately $8.5 billion in July, bringing overall assets under management for the industry to approximately $1.75 trillion;

The Equity Market Neutral and Fixed Income Arbitrage sectors experienced the largest asset inflows on a percentage basis for the second consecutive month, with inflows in July of 3.03% and 0.22% from June 2012 levels, respectively;

Managed Futures funds posted positive results in July, with the month almost a mirror image of June in which managers were able to recoup the previous months’ losses and rebuild positions according to stronger signals; and

Event Driven funds generated overall positive performance in July against the backdrop of European sovereign debt issues and growth concerns in developed economies. M&A activity experienced a slight uptick in newly announced transaction volume in July and credit strategies generated gains during the month as a result of supportive technical strength and improved risk sentiment.

Single-manager hedge funds continue to grow

Single-manager hedge funds, which include commodities trading advisors, withstood market swings, macroeconomic uncertainties and regulatory reforms in the first half of 2012, increasing their reported assets under management by 5.23% to $1.892 trillion, according to a study by PerTrac, the leading provider of analytics, reporting and communications software for investment professionals. This mid-year update to their annual study on the size and composition of the hedge fund industry also found a continued decline in the reported assets under management of funds of hedge funds. The amount of money invested in these investment vehicles, which allocate exclusively to hedge funds, declined by 4.92% during the first half of 2012 to $425 billion. Part of the slide in these funds’ assets can be attributed to the decline in the number of them reporting information to databases, which slipped by 3.81% to 3,259.

Despite the drop for funds of hedge funds, the total, reported amount invested within the hedge fund industry, including funds of hedge funds and single-manager hedge funds (of which, commodities trading advisors – or CTAs – are considered a subset in this study) climbed to $2.317 trillion in the first six months of the year. The total number of all funds reporting to databases also jumped by 4.61% to 14,013, led by single-manager hedge funds, whose ranks swelled 7.46% to 10,754 funds. Most of the gains in the number of single-manager hedge funds (75%) came from small and start-up funds with less than $25 million in assets under management.

These reported numbers suggest that asset allocators have a growing interest in alternative investments and an increasing tendency toward investing directly in hedge funds. The data also points to the resilience of hedge funds as the end of the first half of 2012 marks three and a half years of steady growth.

“Although challenging economic conditions have impacted hedge funds’ performance during the last few years, investors still see their long term value and are giving them a significant place in their portfolios,” said Brendan Dolan, President of PerTrac.

When investors allocated to alternatives in 2012, they favored the largest funds. The “billion dollar club” of single-manager hedge funds, those that oversee more than $1 billion, saw assets under management increase to $1.146 trillion from $1.08 trillion at the end of 2011. The billion-dollar-plus funds represented 60.6% of all assets invested with single-manager hedge funds at the end of the first half of 2012.

The PerTrac hedge fund study is unique because it is the only one that aggregates information from 11 leading global databases. This provides for the most holistic picture of the industry. Of those funds that report, 54% reported to only one database in 2011, according to the 9^th edition of the study. PerTrac’s proprietary analytics software also removes duplicative fund data for an added level of precision in analyzing the number of funds and assets under management.

The study also found, among reporting funds, that:

• The “billion dollar club” reigned supreme within funds of hedge funds as well. 48.7% of assets were controlled by the 3.24% of firms that each managed more than $1 billion.
• CTAs posted healthy gains in assets of 6.05% this year, bringing their total to $438 billion under management at the end of first half of 2012. The total number of CTA funds rose by 1.26% from the end of 2011 to 1,528.
• Forty-five CTAs reported managing in excess of $1 billion and they accounted for 78.1% of that sector’s assets under management.

For more information, please download the full PerTrac study by clicking here.

Greenwich Global Hedge Fund Index rose +0.93% for July

Hedge fund managers posted positive results in July 2012 on average as the Greenwich Global Hedge Fund Index rose +0.93% for the month. As indicated in our first estimates earlier this month, Futures strategies were one of the best performers in July, returning an average of +2.29%. The GGHFI’s gain of +0.93% closely follows that of global equity returns in the S&P 500 Total Return (1.39%), and MSCI World Equity (+1.20%) equity indices. 66% of constituent funds in the GGHFI ended the month with gains.

Global Index Strategy Highlights

• Futures funds are one of the best performers during the month, gaining +2.29% on average. Many managers benefitted from long positions in commodities markets, especially in agriculture. Macro managers also performed well in the month with a +1.52% gain.

• Global stock markets saw much of their gains concentrated in the last week of the month. On average, Long/Short Equity funds returned another month of modest gains (+0.19%), continuing to trail equity markets. Value strategies outperformed both Opportunistic and Growth strategies with a gain of +0.41%. Short-Biased funds were a bright spot in this group in July, rising +3.52%.

• Fixed Income Arbitrage funds were the best performers in the Market Neutral Group in July, returning +1.51%. This strategy is now up approximately 6.1% YTD, along with Convertible Arbitrage. These strategies now lag only Long-Short Credit funds for their 2012 performance (+6.14% YTD).

• Regionally, funds investing in Developed Markets (+0.99%) outperformed those investing in Emerging Markets (+0.20%) on average in July. Global Developed Markets funds had the best month (+1.60%). Perhaps surprisingly, this was followed in the Developed Markets category by Western European funds, which rose 0.95% in July. This brings them to +4.02% YTD, making this region the strongest YTD. Funds focused on Emerging Markets Europe also posted very strong results for the month, gaining +1.17% on average.

U.S. Fixed Income: Hedge Funds Expand Influence

Fixed-income trading volume generated by U.S. hedge funds increased more than 30% from Q2 2011 to Q2 2012, according to the results of Greenwich Associates 2012 North American Fixed-Income Study. That growth far surpassed the 20% increase in trading volumes among all institutions and a 14% pick-up in trading volumes among other types of funds and advisors. As a result, hedge funds increased their clout as a source of U.S. fixed-income activity.

In 2011 hedge funds generated 18% of overall fixed-income trading volume in the United States. In 2012 that share grew to 24%. "However, reflecting the broader trends in market trading flows, hedge fund trading volumes in investment-grade credit actually dropped roughly 60% during the period in our study - even as their overall fixed-income volume grew substantially," says Greenwich Associates consultant Tim Sangston. "Meanwhile, hedge fund government bond trading volumes more than doubled."

As a result of the sharp pick-up in hedge fund trading activity, these investors are expanding their presence within individual fixed-income products. In U.S. government bonds, for example, hedge funds in the year ending Q2 2011 generated just 13% of total U.S. trading volume. In the same period ending in Q2 2012, hedge funds accounted for almost a quarter (24%) of volume. In distressed debt and high-yield credit derivatives, hedge funds generated more than 70% of total trading volume in the year covered in the research

TrimTabs and BarclayHedge Report Hedge Funds Redeem $4.9 billion in June 2012

Hedge Fund Industry’s June Performance Lags S&P 500; Assets Down 29.5% Since 2008 Peak. Equity-Based Funds Are Notably Low Performers Over Past 12 Months

BarclayHedge and TrimTabs Investment Research reported today that the hedge fund industry redeemed $4.9 billion (0.3% of assets) in June, compared with inflows of $1.1 billion in May. Based on data from 3,012 funds, the TrimTabs/BarclayHedge Hedge Fund Flow Report estimated that industry assets were $1.71 trillion in June, down 1.3% from $1.73 trillion in May and down 29.5% from their peak of $2.4 trillion set in June 2008.

“The hedge fund industry can’t seem to get out of the doldrums,” said Sol Waksman, founder and president of BarclayHedge. “Industry performance continues to lag popular benchmarks such as the S&P 500, and asset growth has been flat for most of the past year.”

Industry outflows totaled $32.1 billion from July 2011 to June 2012, compared with inflows of $103 billion for the previous 12 months, according to the report, while industry assets have hovered below $1.75 trillion for the past nine months.

Hedge fund industry performance was up only 0.6% in June, substantially less than the S&P 500 Index, which rose 3.96%. “The industry outperformed the S&P 500 in April and May, but June’s numbers returned to the trend we’ve seen all year,” Waksman said. “For the first six months of 2012, the industry earned a 2.4% return while the S&P 500 rose 8.3%.”

Meanwhile, funds of hedge funds continued to underperform the industry at large. In June, funds of funds redeemed $8.7 billion (1.7% of assets), the 13th monthly outflow in the past 18 months, and posted a 0.5% loss, lagging the industry’s returns by 110 basis points.

Among the major hedge fund categories, Fixed Income funds had the strongest inflows and the top performance over the past year. “Fixed Income funds were a haven, reliably turning profits and attracting inflows as one crisis after another whip-sawed financial markets around the globe,” said Charles Biderman, founder and CEO of TrimTabs. Equity-based hedge funds did not fare so well, Biderman noted.

“Investors hoping to cash in on hedge fund managers’ stock-picking skills must be disappointed,” Biderman said, noting that out of 13 major hedge fund categories, no equity-related categories showed a profit in the past 12 months, and two of the four worst-performing categories were represented by stock funds, Equity Long Bias (-6.1%) and Equity Long Only (-7.4%).

Hedge funds based in the Eurozone experienced the largest inflows (3.0% of assets) in June among eight global regions tracked by TrimTabs and BarclayHedge, a turnaround from the dominant trend of the past year, “when investors dumped European funds en masse and poured billions into Japanese funds in the hope of capitalizing on shifts in the value of the yen,” said Leon Mirochnik, Vice President at TrimTabs. 

Meanwhile, the July 2012 TrimTabs/BarclayHedge Survey of Hedge Fund Managers found that fund managers were evenly divided between neutral and bearish on the S&P 500 for August. Conducted in late July, the survey of 78 hedge fund managers found that bullish sentiment on the S&P 500 dropped to an 11-month low while bearish sentiment jumped to its highest level in the past nine months.

The TrimTabs/BarclayHedge database tracks hedge fund flows on a monthly basis. The TrimTabs/BarclayHedge Hedge Fund Flow Report provides detailed analysis of these flows as well as relevant topical studies.  Click here for further information.

BarclayHedge is a leading hedge fund data vendor and one of the foremost sources for proprietary research in the field of alternative investments. From its origin as a research specialist and performance measurement firm, BarclayHedge has developed complete client services as a publisher, database and software provider, and industry consultant.

TrimTabs Investment Research is the only independent research service that publishes detailed daily coverage of U.S. stock market liquidity--including mutual fund flows and exchange-traded fund flows--as well as weekly withheld income and employment tax collections.  Founded by Charles Biderman, TrimTabs has provided institutional investors with trading strategies since 1990.  More information here.

HEDGE FUNDS ADVANCED +0.47% IN JULY, Remain Cautious; Lag Volatile Equity Markets

Hennessee Group LLC, an adviser to hedge fund investors, announced today that the Hennessee Hedge Fund Index increased +0.47% in July (+2.78% YTD), while the S&P 500 gained +1.26% (+9.68% YTD), the Dow Jones Industrial Average advanced +1.00% (+6.48% YTD), and the NASDAQ Composite Index increased +0.15% (+12.83%). Bonds were also up, as the Barclays Aggregate Bond Index increased +1.38% (+3.78% YTD) and the Barclays High Yield Credit Bond Index increased +1.90% (+9.30%).

“July was another choppy month for equity markets and risk assets in general. Financial market volatility continued in July due to slowing economic growth in the U.S. and China and concerns about the European sovereign debt and banking crisis. ‘Risk off’ assets performed well as yields on U.S. and German government bonds declined to record lows. ‘Risk on’ assets were also positive as global equity markets generally posted gains for the month,” commented Charles Gradante, Managing Principal of Hennessee Group. “Hedge funds were conservatively positioned as the European situation remained precarious, and underperformed other risk assets.”

“Managers report that shorting has been challenging. Many maintain low net exposure because they are cautious about overall market direction, but would like to have higher gross exposure,” commented Charles Gradante. “Managers state that it has been challenging to grow the short portfolio as many shorts have declined in value, which reduces short exposure. In addition, it has been difficult to find and size new ideas as the market declines. Some managers are utilizing ETFs, which detracted from performance in the sharp late month rally.”

Equity long/short managers were essentially flat in July, as the Hennessee Long/Short Equity Index advanced +0.05% (+2.63% YTD). Equity markets were volatile again punctuated by a late month “risk on” rally as money moved out of treasuries into equities, sparking a +2% rally in the broad averages. The best performing sectors were telecommunications (+5.48%), energy (+4.06%), and consumer staples (+2.61%). The worst performing sectors were materials (-1.33%), consumer discretionary (-0.34%) and financials (+0.03%). Hedge funds performed well during the first couple weeks of July when global equity markets declined amid concerns about Europe. However, hedge funds underperformed as markets rallied on the hope that the European debt problems would be fixed. Many managers were cautious about increasing exposures into the “risk on” move due to fears that relief rally would be brief and risk of getting whipsawed would be high. While July is typically a strong month for long/short equity managers due to second quarter earnings reports, many managers struggled to generate alpha. While long portfolios performed well, short portfolios detracted from performance. Despite markets climbing higher, managers remain cautiously positioned with low net exposures. Managers remain worried about slowing growth in the U.S. and China as well as unresolved issues in Europe. In addition, investors are concerned about the November elections and the year-end “fiscal cliff” of tax cuts and economic stimulus that could drive the U.S. economy into recession.

“Stocks took a leap of faith that the Fed is making plans to shore up the economy and financial markets. The market rose +3% after the GDP was reported at 1.5%.” said Lee Hennessee, Managing Principal of Hennessee Group. “Hedge funds continue to be frustrated by a challenging investment environment. Managers remain steadfast, refusing to chase brief relief rallies and risk being whipsawed. Managers are waiting for markets to fit their strategy and for macro dominance to abate before aggressively deploying risk.”

The Hennessee Arbitrage/Event Driven Index advanced +0.70% (+4.17% YTD) in July. Like equity markets, credit markets were volatile, but posted gains by month end. Treasury yields ended the month lower, as the yield on the 10 Year U.S. Treasury declined 16 basis points from 1.67% to 1.51%. The Barclays Aggregate Bond Index increased +1.38% (+3.78% YTD) and the Barclays High Yield Credit Bond Index increased +1.90% (+9.30%). The spread of the BofA Merrill Lynch High Yield Master Index tightened 28 basis points from 6.44% to 6.16%. In addition, many managers experienced gains in asset-backed securities (ABS) and especially residential mortgage backed securities (RMBS), which had a strong month as investors continued to reach for better yields. Managers still like the space but state that the easy money has been made. The Hennessee Distressed Index increased +0.91% in July (+4.01% YTD). Distressed managers experienced gains as the markets rallied. Hedges detracted from performance. Some managers experiencing outsized gains from distressed exposure in Europe. The Hennessee Merger Arbitrage Index increased +0.38% in July (+2.54% YTD). Despite the market rally, merger arbitrage managers posted modest gains due to mixed performance across core positions, including CNOOC bid for Nexen. The Hennessee Convertible Arbitrage Index advanced +1.04% (+6.00% YTD). Convertible arbitrage managers were positive as risk markets rallied, yields continued to decline, and credit spreads tightened.

“Managers like high yield bonds as there is no foreseeable reason for the yield curve to steepen with the current economic condition and monetary policy,” commented Charles Gradante. “Managers also state that government bonds are overvalued and they will begin to short them at some point in the future. It will be hard for the Fed to keep U.S. rates down indefinitely. Any good news from here could lead to a reversal. Managers believe that there will be a time when shorting Treasuries and German Bunds is going to be very profitable.”

The Hennessee Global/Macro Index advanced +1.04% (+1.33% YTD) in July, its best month since February. Global equities were volatile, but posted gains. The MSCI All-Country World Index ended the month up +1.25% (+5.51% YTD) on speculation the ECB would buy bonds to help cut borrowing costs and save the euro. The index reversed course several times in July, registering 3% swings on four separate occasions. International hedge fund managers posted gains, as the Hennessee International Index advanced +1.37% (+3.55% YTD). Emerging markets were also positive as the MSCI Emerging Markets Index gained +1.61% (+3.94% YTD). Hedge fund managers posted gains, but underperformed due to conservative exposure levels, as the Hennessee Emerging Market Index advanced +0.93% (-2.07% YTD). Macro managers posted gains in July, as the Hennessee Macro Index advanced +3.10% (+2.83% YTD). Macro managers posted a strong month with profits coming from a several trades, including long commodities, long bonds, long the U.S. dollar, and short the euro. Agricultural commodities had a strong month due to supply concerns caused by the drought in the U.S. Managers generated gains in soybeans, wheat and corn, which all rallied sharply. Oil and natural gas also posted gains. In currencies, the U.S. Dollar gained +2.5% against the Euro, while declining -1.5% against the Yen. Macro managers also had positive contributions from U.S. and German fixed income, which profited from weakening European economic conditions and a downgrade of Chinese growth forecasts by the IMF.

Hedge funds posted positive returns for July, making it the first month since February to witness healthy returns. In July, the Eurekahedge Hedge Fund Index was up 1.15%¹, as managers capitalised on trends across several asset classes. Comparatively the MSCI World Index was up 1.05%².

Key highlights for July 2012:

• Hedge funds were back in the black with positive performance numbers in July after four months of negative returns.
  
  
• CTA/managed futures funds witnessed the best monthly return since December 2010, gaining 2.56% in July 2012; systematic trading managers posted 3% returns.
  
  
• The Mizuho-Eurekahedge Top 100 Index rose 2.11% in July, which was double the gain posted by global markets³.
  
  
• Latest research showed that investors increased allocations to global macro investing funds and macro managers have raised over US$25 billion June year-to-date.
  
  
• North American fixed income hedge funds witnessed their highest monthly in more than 10 years – gaining 3.95% during the month⁴.

 

Main Indices

Main Indices	July 2012*	2012 Returns	2011 Returns
Eurekahedge Hedge Fund Index	1.15	2.62	-3.57
Eurekahedge Fund of Funds Index	0.79	1.56	-5.41
Eurekahedge (Long-Only) Absolute Return Fund Index	0.78	5.36	-13.89
Eurekahedge Islamic Fund Index	0.91	3.92	-3.40

The close of July saw most regions in positive territory with European managers posting the best gains as the underlying markets rallied strongly in the last week of the month. Rallies were driven by positive remarks from ECB President Mario Draghi, who suggested further policy support for the region. The Eurekahedge European Hedge Fund Index was up 1.36% during month with the Eurekahedge Eastern Europe & Russia Hedge Fund Index gaining 2.44%.

 

Regional Indices

Regional Indices	July 2012*	2012 Returns	2011 Returns
Eurekahedge North American Hedge Fund Index	0.67	3.26	-0.33
Eurekahedge European Hedge Fund Index	1.36	2.79	-6.21
Eurekahedge Eastern Europe & Russia Hedge Fund Index	2.44	0.32	-20.35
Eurekahedge Japan Hedge Fund Index	-1.47	-0.58	-1.35
Eurekahedge Emerging Markets Hedge Fund Index	0.89	3.08	-8.06
Eurekahedge Asia ex-Japan Hedge Fund Index	0.44	2.18	-12.43
Eurekahedge Latin American Hedge Fund Index	0.87	5.69	2.06

Among other regions, managers investing in emerging markets and Latin America posted returns of 0.89% and 0.87% respectively, profiting from trends in agricultural commodities and the Euro-spurred month-end rally. Asia ex-Japan and North American funds also witnessed positive returns in July while Japanese hedge funds were down 1.47%. The Japanese sector declined through the month due to a sombre global economic outlook, yen appreciation and European debt concerns – the Tokyo Topix lost 4.39% during the month.

 

Strategy Indices

Most strategies were positive in July amid strong trends across a number of sectors. CTA/managed futures funds posted the best results during the month with managers gaining 2.56% on average – the highest return since December 2010. Systematic/quantitative trading secondary mandates were the best performing, averaging gains of 3% as trend-following strategies proved successful across the fx and agricultural commodities space. Macro investing managers also posted gains from these sectors, delivering returns of 1.49% during the month. A number of macro managers reported gains from exposure to interest rates and fixed income as safe haven assets performed well during the month amid increasing uncertainty in the markets. The Eurekahedge Fixed Income Hedge Fund Index also registered strong returns in July, gaining 1.28%.

Strategy Indices	July 2012*	2012 Returns	2011 Returns
Eurekahedge Arbitrage Hedge Fund Index	0.79	3.90	1.35
Eurekahedge CTA/Managed Futures Hedge Fund Index	2.56	1.96	-1.39
Eurekahedge Distressed Debt Hedge Fund Index	0.42	3.05	-2.17
Eurekahedge Event Driven Hedge Fund Index	-0.08	1.69	-4.40
Eurekahedge Fixed Income Hedge Fund Index	1.28	5.11	0.85
Eurekahedge Long/Short Equities Hedge Fund Index	0.46	1.89	-6.90
Eurekahedge Macro Hedge Fund Index	1.49	1.16	-1.18
Eurekahedge Multi-Strategy Hedge Fund Index	0.82	3.42	-2.30
Eurekahedge Relative Value Hedge Fund Index	1.00	6.77	-0.78

 

Mizuho-Eurekahedge Indices	July 2012*	2012 Returns	2011 Returns
Mizuho-Eurekahedge Index - USD	1.59	2.45	-2.07
Mizuho-Eurekahedge TOP 100 Index - USD	2.11	3.39	1.87
Mizuho-Eurekahedge TOP 300 Index - USD	1.93	2.72	0.04

 

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.

Managed Futures and Credit Hedge Funds Start 2H 2012 with a Strong July

Hedge funds reporting July performance show a median return of +0.7% versus +1.4% for the S&P 500 Total Return. YTD, hedge funds are +3.1% vs. +11.0% for the S&P 500 TR. The industry's performance in July was most positively influenced by managed futures strategies which benefited not only from the return of trending USD strength, but from many which appeared well positioned to benefit from the drought induced spike in grain prices. Credit strategies produced their best month since January and have produced aggregate returns greater than 2x that of equity strategies in 2012.

• Hedge funds reporting July performance show a median return of +0.7%, in-line with regression estimates of +0.8%, versus +1.4% for the S&P 500 TR. YTD, hedge funds are +3.1% vs. +11.0% for the S&P.

• The HFN Hedge Fund Aggregate Index was +0.6% and +1.8% through July in 2011 and 2010, respectively, before finishing those years -5.0% and +10.6%.

• The Eurozone’s continuous state of flux along with poor U.S. jobs data and its impact on monetary policy expectations continued to influence global markets in July. Unlike June when multiple macro events pushed equities broadly higher, much of July’s news was negative until the ECB president’s comments on the 25th provided a questionable basis for a positive reversal.

• The industry’s performance in July was most positively influenced by managed futures strategies which benefited not only from the return of trending USD strength, but from many which appeared well positioned to benefit from the drought induced spike in grain prices.

• Prior to the month-end rally, July was challenging for directional equity strategies and those with a long bias lagged significantly. Credit strategies produced their best month since January and have produced aggregate returns greater than 2x that of equity strategies in 2012.

• Through June, hedge fund assets have fallen for four consecutive months to $2.5 trillion, a decline of $20.8 billion in June and $53.4 billion in Q2. Net outflows occurred in 8 of the last 12 months, during which $28 billion has been taken out of the industry. Redemptions from FoFs appear to be the outflows’ primary driver, offsetting what is likely healthy direct investment.

• In reaction to the theme of difficult to predict, macro driven markets, investor flows were weak across the board in June, particularly for event driven equity and emerging markets. In Q2, credit and macro strategies were two of the few sectors receiving net inflows.

Full report

ISRAEL HEDGE FUND INDUSTRY GROWS 162% IN LAST FIVE YEARS

Israel, already widely acknowledged as a global leader for innovation in technology and life sciences, is now making major strides in the financial services industry. A surveyhttp://tzurmanagement.com/tzur-management-israel-hedge-fund-survey released today, conducted by Tzur Management, the leading platform and fund administrator for the Israeli fund industry, highlights the significant expansion in the industry over the last five years. Since 2006 the number of funds in Israel has increased 162%, reflecting the emergence of a high growth investment industry in the country.

Over the past decade, deregulation and new legislation in securities and tax law, together with structural changes in the institutional market, have made it possible for a robust financial services industry to emerge. Israeli financial institutions, and particularly alternative investment funds, have evolved into sophisticated global investors with billions of dollars under management. However, a lack of knowledge and awareness of the potential of the Israeli investment industry means that less than a third of funds under management are raised from international sources, the survey has discovered.

The report’s other key findings include: .

• Assets under management in Israel grew 30% in 2011 and an additional 10% in Q1 2012.
• Israeli hedge funds (“IHF”) have consistently outperformed the HFRX Global Hedge Fund Index since the financial crisis (2009: IHF +33.7%, HFRX +13.4%; 2010; IHF +17.6%, HFRX +5.2%; 2011: IHF +7.9% HFRX -8.9%).
• Over 80% of participants agreed that foreign investors are not aware of the Israeli hedge fund industry.
• Equity Long/Short funds currently hold the largest share of the industry, with 43% of assets under management, with quantitative strategies the second largest accounting for 23% (doubling since 2008).
• Over 50% of funds invest all their capital in international markets with no direct exposure to the markets in Israel.

Yitz Raab, Founder and Managing Partner of Tzur Management, said:

“This report marks the first-ever survey of the Israeli hedge fund industry. Israel’s impressive academic and scientific infrastructure, continuing immigration of highly skilled professionals, and a developed economy with a strong entrepreneurial culture are all fueling the industry’s rapid growth. Although in its early stages, it is our belief that, as in the areas of technology and life sciences, the Israeli hedge fund industry will grow to become a recognized center of excellence over the coming decade.” .

New Dow Jones Credit Suisse Hedge Fund Index Commentary

The Dow Jones Credit Suisse Hedge Fund Index finished down 0.40% in June. A new monthly commentary offers insight into hedge fund performance through the month of June. Some key findings from the report include:

• Hedge funds, as measured by the Dow Jones Credit Suisse Hedge Fund Index, finished May down 0.40%, with 5 out of 10 strategies in positive territory;
• In total, the industry saw estimated outflows of approximately $2.53 billion in June, bringing overall assets under management for the industry to approximately $1.73 trillion;
• The Equity Market Neutral and Fixed Income Arbitrage sectors experienced the largest asset inflows on a percentage basis in June, with inflows of 0.93% and 0.43% from May 2012 levels, respectively;
• Long/Short Equity funds posted positive performance as June was somewhat of a “risk-on” month and select Bank exposure performed positively as Financials, in general, were positive; and
Event Driven funds generated overall negative performance in June against the continued backdrop of an uncertain economic environment.

While M&A activity experienced a slight decline in newly announced transaction volume in June, credit strategies generated gains during the month due to supportive technical conditions and improved risk appetite from investors.

Redemption Fees Becoming More Prevalent for Hedge Funds

In a recent survey of their alternative investment clients, TKS Solutions noticed a trend that more funds are enacting redemption fees as a means to retain capital. Given the struggle that has occurred between the investors’ desire for liquidity and the fund’s desire for a stable capital base, this development is not a complete surprise. However, the complications that are associated with the calculations and accounting implications often catch funds off-guard.

As a result of the recent economic turmoil, formerly dormant investors—who would happily park their money in a fund for years at a time—have become very active, always looking for sources of liquidity. This constant movement causes volatility in the fund’s capital, and firms have looked to various means to counter that movement in order to keep invested capital within their organization.

One approach is for funds to create stringent liquidity gates. While this meets the fund’s goals, investors abhor gates. They complain that managers are creating a “Hotel California for money”, which can never leave—even in times of emergency.

An alternative approach is enacting a redemption fee. This allows investors to withdrawal their money at any time they desire, but for a price. The idea being that most investors will leave their capital within the fund, rather than incur a penalty.

While redemption fees seem like a straightforward solution, they are anything but. There are two all-to-common, but often overlooked, complications in processing redemption fees: the allocation of the fees to the other investors, and the interaction of the fee with the performance fee calculation. Both of these complications combine to break many of the manual tools typically used by fund accountants.

The fees charged on redeeming investors are usually allocated to the remaining investors in the form of revenue. For redemptions which occur at the beginning of the period, capital percentages must be adjusted by the amount of the withdrawal before the “redemption fee revenue” is distributed.

For ending redemptions, a new set of percentages that excludes the withdrawn capital need to be created and used to allocate the redemption fees. Fund accountants must pay particular attention to the allocation percentages used; otherwise a portion of that income could erroneously go to the departing investor.

The other complication relates to the interaction of the incentive fee calculation and the redemption fees. Since the withdrawn amounts are typically determined after incentive fees are charged, an additional step needs to be taken for “end of period” redemptions in funds with incentive fees. For those redemptions, after the incentive fee is calculated, and after the withdrawal amounts are determined, and after the redemption fee income is allocated to the remaining investors, then the incentive fee needs to be re-calculated. That additional step is necessary since the income used to determine the incentive fee did not include the allocated redemption fee “income”. If that step is not done, then the general partner will forever lose out on charging a performance fee on the “income” that was distributed as a result of the redemption.

Funds need to maintain a stable base of capital in order to effectively invest. Investors are always looking for sources of liquidity. Redemption fees are becoming a common device for balancing these opposing desires. Funds can avail themselves to this tool, so long as their back office has the sophisticated systems/processes to handle the complications that arise from processing redemption fees.

Hedge Funds Take in Lackluster $852 Million in May 2012

BarclayHedge and TrimTabs Investment Research reported today that the hedge fund industry took in a lackluster $852 million (0.05% of assets) in May, but that was an improvement over April’s net outflows of $3.2 billion. Based on data from 3,001 funds, the May TrimTabs/BarclayHedge Hedge Fund Flow Report estimated that the hedge fund industry assets stood at $1.72 trillion in May, down 2.0% from $1.76 trillion in April and down 29% from the peak of $2.4 trillion set in June 2008.

“The small inflows of May did not really buck the larger hedge fund industry trend of meager returns, flat asset growth, and net outflows over the past year,” said Sol Waksman, founder and president of BarclayHedge. Outflows from the industry totaled $18.8 billion from June 2011 to May 2012, compared to inflows of $96.2 billion for the previous 12 months while assets hovered around $1.7 trillion for the past nine months.

Hedge Funds Lag Equity Markets in Macro Driven Market

The Hennessee Hedge Fund Index increased +0.06% in June (+2.10% YTD), while the S&P 500 gained +3.96% (+8.66% YTD), the Dow Jones Industrial Average advanced +3.93% (+5.42% YTD), and the NASDAQ Composite Index increased +3.81% (+12.66%). Bonds were also up, as the Barclays Aggregate Bond Index increased +0.04% (+2.37% YTD) and the Barclays High Yield Credit Bond Index increased +2.11% (+7.26%).

“It looked like June was going to be another poor month for risk assets until the last trading day of the month. The agreement from European Union leaders towards a future banking union resulted in a short-covering rally,” commented Charles Gradante, Managing Principal of Hennessee Group. “The markets continue to be macro driven. Trading volume is down, volatility is up, correlation is high, and macro events are driving price swings. It remains a challenging environment for security selection. Most managers are not trying to time the market, as it is difficult to do consistently. Most are conservative, trying to generate alpha in specific opportunities.”

“Hedge funds lagged in June as traditional benchmarks posted strong positive performance. The majority of gains came at the end of the month as investor sentiment improved on the hope for stability in Europe. Hedge funds did not participate in the rally due to conservative exposures and suffered losses due to short covering. ” said Lee Hennessee, Managing Principal of Hennessee Group. “For the year, hedge funds are underperforming traditional equity benchmarks.”

Equity long/short managers posted modest positive performance, as the Hennessee Long/Short Equity Index advanced +0.63% (+2.58% YTD). After a relatively calm start to the year, the Dow posted twenty-two days of triple-digit moves during the second quarter, compared with just six in the first quarter. Equity market volatility continued in June as the S&P 500 ended the month with a gain of nearly 2.5%, bringing the monthly return to +4%. Hedge fund managers started June with conservative exposures after the sharp selloff in May. As a result, hedge funds failed to participate in the market rally.

Looking to July, managers expect volatility to continue as we enter second quarter reporting season, but are optimistic as earnings releases should lead to more dispersion among securities. Managers are seeing opportunities as equity valuations appear cheap. The S&P 500 is trading at a price-to-earnings multiple of less than 13. Although expectations for earnings have come down, many remain bullish on corporate profits. However, there are plenty of longer term concerns. While Europe remains a worry for markets, focus seems to have shifted to the U.S., where investors are concerned about whether a political stalemate will dictate performance during the second half of the year. With government policy affecting financial markets, investors are nervous about the November elections and the year-end “fiscal cliff” of tax cuts and economic stimulus that could drive the U.S. economy into recession.

“Some pundits are saying that a ‘perfect storm’ is developing due to stalled growth in the United States, the European debt crisis, a slowdown in China, and military conflict in Iran,” commented Charles Gradante. “But many managers are taking a contrarian point of view, stating that this scenario is already built into stock prices. By any measure, stocks are cheap. The S&P 500 is currently trading at a price-to-earnings (PE) ratio of 12.8. Stocks in the United Kingdom and France now are trading at only 9.5 times 2012 earnings, the lowest in 30 years. With more than 60% of corporate sales from European firms originating internationally, investing in Europe may be around the corner.”

The Hennessee Arbitrage/Event Driven Index declined -0.28% (+3.11% YTD) in June. The Barclays Aggregate Bond Index increased +0.04% (+2.37% YTD). U.S. yields ended the month slightly higher, as the yield on the 10 Year U.S. Treasury increased 8 basis points from 1.59% to 1.67%. The spread of corporate bonds in the Barclays U.S. Aggregate index over Treasuries tightened slightly, with the average yield on the bonds reaching 3.27%. High yield credit rallied, as the spread of the BofA Merrill Lynch High Yield Master Index tightened 52 basis points from 6.96% to 6.44%.

The Hennessee Distressed Index fell -1.24% in June (+2.29% YTD). Distressed funds were down for the month as core long positions and special situations declined in value.

The Hennessee Merger Arbitrage Index decreased -0.64% in June (+1.93% YTD). Managers’ performance was mixed as deal spreads widened in several core positions amid heightened volatility. Global mergers-and-acquisition activity has declined due with renewed concerns about the health of global economies.

The Hennessee Convertible Arbitrage Index advanced +1.02% (+5.04% YTD). Convertible arbitrage managers were marginally higher driven primarily from the tightening of credit spreads.

“Many managers booked gains in a short oil trade betting on a global slowdown. Signs of slowing global growth and a production increase by Saudi Arabia pushed prices to nine month lows. Most were able to book gains despite a sharp reversal at month end as oil jumped +8%,” commented Charles Gradante. “While many are short oil due to near term growth concerns, most are longer term bulls. Secular demand from emerging markets and the depletion of oil resources will provide upward pressure over the next decade.”

The Hennessee Global/Macro Index declined -0.99% (-0.25% YTD) in June. Throughout the month, investors were focused on events in Europe, and a victory for Greece’s pro-bailout party was well received by the markets. Global financial market volatility continued throughout June due to concerns about the European banking system. Global equity markets ended the month with broad-based gains, posting strong performance on the final trading day. The MSCI All-Country World Index advanced +6.79% in June (+0.77% YTD). Italy (+13.58%) and Spain (+20.63%) were top performers.

International hedge fund managers posted small gains due to conservative positioning, as the Hennessee International Index advanced +0.20% (+2.50% YTD).

Emerging markets were also positive, but underperformed the developed markets. The MSCI Emerging Markets Index gained +3.43% (+2.29% YTD). Hedge fund managers posted losses as currency exposure detracted from performance, as the Hennessee Emerging Market Index declined -1.93% (-4.79% YTD).

Macro managers were down in June, as the Hennessee Macro Index decline -1.44% (-0.64% YTD).

Managers experienced losses in currencies and fixed income as most were positioned for a continued “risk off” environment. Many macro funds attempt to follow trends, resulting in crowded trades and painful reversals. Those managers were whipsawed by the euro, which suffered its longest losing streak of the month only to reverse and post its biggest gain since October. The Dow Jones-UBS Commodity Index was up +5.49% for the month of June (-3.74%). However, performance among commodities was mixed, with a sharp decline in oil, significant gains in natural gas and agriculturals, and mixed performance across metals.