Ω
Hedge Funds Underperform as Equity Markets Experience Best October in 37 Years
The Hennessee Hedge Fund Index advanced +2.46% in October (-2.95% YTD), while the S&P 500 increased +10.77% (-0.35% YTD), the Dow Jones Industrial Average advanced +9.54% (+3.25% YTD), and the NASDAQ Composite Index climbed +11.14% (+1.19% YTD). The Barclays Aggregate Bond Index advanced +0.11% (+6.79% YTD) as bonds were mixed. Treasuries declined with the S&P/BG Cantor 7-10 Year Treasury Bond Index falling -1.31% (+12.73%), while the Barclays High Yield Credit Bond Index increased +5.99% (+4.52% YTD).
“Renewed optimism about the U.S. economic recovery, Europe's ability to address its debt problems, and China’s ability to avoid a hard landing resulted in a remarkable ‘risk on’ phase,” commented Charles Gradante, Co-Founder of Hennessee Group. “Hedge funds posted their best monthly gain so far this year, driven by the rebound in risk assets.”
“Performance indicates that hedge funds were underexposed to the markets. Many were conservatively positioned with low gross and net exposures, and as a result, they did not fully participate in the market rally.” commented Lee Hennessee, Managing Principal of Hennessee Group. “In addition, massive short covering resulted in negative alpha generation and detracted from performance.”
The Hennessee Long/Short Equity Index advanced +3.14% (-2.53% YTD) in October. Managers benefited from the strong equity rally as the S&P 500 gained +10.77%, essentially erasing the year’s entire loss (-0.35% YTD). All sectors were positive in October. The best performing sectors were energy (+16.95%) and materials (+17.90%), while telecommunication services (+1.76%) and utilizes (+3.52%) were the worst performing. Small caps also performed well as the Russell 2000 gained +15.04% (-5.43% YTD). Hedge fund managers were conservatively positioned with gross and net exposures at the lower end of historical ranges and with significant cash balances. The best performing managers increased exposures intra month as the equity markets rallied. U.S. domestic earnings dominated the month, and, according to reports, more than two thirds of the companies beat their estimates. While hedge fund managers typically outperform during earnings season as they are able to pick winners and losers, this period was challenging as correlations among securities remained extremely high. In addition, the run up in risk assets was also largely due to short covering. The most shorted stocks outperformed the least shorted stock during the rally, which detracted from performance and resulted in negative alpha generation in portfolios.
“It has been an extremely challenging investment environment. We have seen managers get ‘whipsawed’ due to headline risks, especially related to the Eurozone sovereign debt crisis,” commented Charles Gradante. “Looking forward, things should remain volatile. Europe needs to decide on upcoming Greek debt details and austerity programs, and, in the U.S., the congressional Super Committee’s deadline for $1.2 trillion in cuts and taxes is looming in November.”
The Hennessee Arbitrage/Event Driven Index rallied in October, increasing +1.85% (-1.68% YTD) as risk assets rallied and spreads tightened. The Barclays Aggregate Bond Index advanced +0.11% (+6.79% YTD) as bonds were mixed. Treasuries declined with the S&P/BG Cantor 7-10 Year Treasury Bond Index falling –1.31% (+12.73%) during the month, as the 10-year Treasury yield increased 25 basis points to 2.17% from 1.92%. The Barclays High Yield Credit Bond Index increased +5.99% (+4.52% YTD). While new issue activity continues to be limited relative to earlier in the year, there were some positive signs as some issuers were able to tap the capital markets. The Hennessee Distressed Index increased +2.75% in October (-2.32% YTD). Distressed portfolios rebounded as the equity markets rallied. However, distressed and illiquid names generally lagged more liquid names during the rally. In addition, hedges, which had increased during the turmoil in September, detracted from performance. The Hennessee Merger Arbitrage Index advanced +1.47% in October (-0.13% YTD). Managers benefited from the equity market rally and spread tightening. There was a healthy flow of new deals, and managers are actively adding new merger arbitrage situations to their portfolios, including Goodrich and Synthes. While deal spreads have narrowed, they remain attractive. The Hennessee Convertible Arbitrage Index returned +1.15% (-1.06% YTD) in October. During the month, convertible bond valuations generally richened in most global regions. The rally in the equities and tightening of credit spreads led to convertibles being better bid. The volatility index VIX eased to 30 from its September month-end level of 43.
“Some managers have expressed concern that the assertion of a German led fiscal integration in the euro zone would make it increasingly unattractive for all the countries that joined to stay in the single currency,” commented Charles Gradante. “Portugal, Ireland, Finland and Greece could pull out of the Euro rather than have to operate under a single euro zone treasury.”
The Hennessee Global/Macro Index increased +1.47% in September (-5.29% YTD). The MSCI All-Country World Index of global stocks jumped +10.62% in October (-6.11% YTD), its best month since April 2009, after Germany and France pledged to support European banks and increase the rescue fund. Strength was broad based as all developed markets were positive except Greece. International hedge fund managers were positive, but lagged the benchmark due to cautious positioning, as the Hennessee International Index advanced +1.84% (-4.72% YTD). Emerging markets advanced +12.23% in October, which was their best monthly performance since May 2009. Russia gained +16.72% (-13.91% YTD), Brazil added +18.34% (-16.67% YTD), and China increased +16.65% (-15.30% YTD). Hedge fund managers were conservatively positioned with low beta exposure going into October, and underperformed on a relative basis, as the Hennessee Emerging Markets Index was up +2.94% (-8.67% YTD). The Hennessee Macro Index was down -0.56% in October (-0.56% YTD). Macro managers again displayed wide performance dispersion. Managers positioned bullish on risk assets experienced gains, while managers bearish on risk assets suffered losses as investors’ excitement over the most recent plan to address the European sovereign debt crisis drove strong rallies in risk assets. The S&P Goldman Sachs Commodity Index retraced much of its September losses, advancing +9.75% in October (+0.46% YTD). The gains were led by strong performance of oil prices and supported by a -3.04% decline in the U.S. Dollar Index. Emerging and commodity-linked currencies rebounded after a sharp selloff in September. Gold also reversed some of its recent losses, returning to almost $1,750 an ounce.
Friday, November 11, 2011
Eurekahedge Index up 1.88% in October
Mizuho-Eurekahedge Index remains in black, Oct YTD
The Eurekahedge Hedge Fund Index gained 1.88%1 in October as optimism returned to the global economy and markets posted strong rallies. The MSCI World Index gained 8.65%2 amid moves to resolve the European debt crisis, as well as better than expected economic data from the US.
Global markets are down 7.60%3 (October YTD), while the Eurekahedge Hedge Fund Index is down 3.05%. The asset weighted Mizuho-Eurekahedge Top 100 Index4 continues its strong run for the year and is now up an impressive 1.17% in 2011.
Key highlights for October:
The Eurekahedge Hedge Fund Index witnessed its largest gain of 2011, rising 1.88% during October
The Mizuho-Eurekahedge Top 100 Index remained in positive territory for the year with a 1.17% return (October YTD)
Long/short equity funds posted their largest gain since May 2009, gaining 4.1%
Early reports indicate net positive asset flows to hedge funds in October 2011
Japanese hedge funds have attracted the largest asset flows (in percentage terms), increasing 7.5% for the year, allowing Asian hedge fund assets to remain at US$130 billion
Launch activity remained strong through 3Q 2011 with more than 150 new hedge funds launched during this time5
Main Indices
Table 1: Main Indices
Index
Oct 2011
Est1
2011
Returns
2010
Returns
Eurekahedge Hedge Fund Index
1.88
-3.05
10.76
Mizuho-Eurekahedge Top 100 Index new
0.73
1.17
10.19
Eurekahedge Fund of Funds Index
1.31
-3.96
4.64
Eurekahedge Long-Only Absolute Return Fund Index
6.21
-9.97
15.59
Eurekahedge Islamic Fund Index
3.63
-2.73
9.44
Regional Indices
Table 2: Regional Indices
Index
Oct 2011
Est1
2011
Returns
2010
Returns
Eurekahedge North American Hedge Fund Index
2.74
-0.89
13.72
Eurekahedge European Hedge Fund Index
2.83
-4.26
8.99
Eurekahedge Eastern Europe & Russia Hedge Fund Index
6.36
-11.34
16.32
Eurekahedge Japan Hedge Fund Index
-0.20
-1.13
8.30
Eurekahedge Emerging Markets Hedge Fund Index
3.38
-5.04
10.48
Eurekahedge Asia ex-Japan Hedge Fund Index
4.13
-9.05
10.09
Eurekahedge Latin American Hedge Fund Index
1.67
1.42
9.61
All regional mandates finished the month with positive returns. Managers investing in Eastern Europe & Russia witnessed the largest gains, up 6.36%. Risk appetite was given a boost early in the month as European economies moved to recapitalize their banks; the emerging markets in the region gained substantially from the positive sentiment. The Eurekahedge European Hedge Fund Index also posted healthy gains of 2.83% in October.
Among other regions, Asia ex-Japan managers posted impressive returns of 4.13%, posting gains across the different strategies and asset classes. The MSCI AC Asia Pacific Ex Japan Index was up 8.63%. North American managers also posted strong profits in October, up 2.74%, on the back of European optimism as well as better than expected economic data. The S&P 500 witnessed its largest gain in 20 years, posting returns of 10.77% in October. A number of North American managers, as well as managers across other regions, missed out on the early rally, as risk aversion from September saw them with net negative exposures at the start of October. Latin American managers also posted gains of 1.67% during the month, and continue to remain ahead of the rest for year – the Eurekahedge Latin American Hedge Fund Index is up 1.42% October YTD.
Strategy Indices
Hedge funds investing in riskier assets raked in the largest gains in October with distressed debt managers gaining 3.56% while long/short equity managers posted excellent gains of 4.11%. The US corporate credit markets were up, along with equity markets, on the back of surging risk appetite during the month. The high yield bond sector witnessed strong inflows from investors looking to take advantage of opportunities after the segment experienced two consecutive months of sell-offs. The BofA Merrill Lynch High Yield Index6 was up 5.96% during the month. Long/short equity funds posted their largest gain since May 2009 as equity market rallies were supported by US economic indicators that kept beating estimates throughout the month, which in turn were supplemented by positive movements in the European debt situation. CTA/managed futures funds were down 1.84% during month, with short-term systematic traders losing out the most. CTA/managed futures funds investing in equity index futures posted strong returns however, while managers with exposures to metals (both base & precious) and oil also witnessed gains for the month.
Table 3: Strategy Indices
Index
Oct 2011
Est1
2011
Returns
2010
Returns
Eurekahedge Arbitrage Hedge Fund Index
1.50
1.03
9.38
Eurekahedge CTA/Managed Futures Hedge Fund Index
-1.84
-3.60
12.07
Eurekahedge Distressed Debt Hedge Fund Index
3.56
-1.64
22.71
Eurekahedge Event Driven Hedge Fund Index
2.54
-4.36
15.21
Eurekahedge Fixed Income Hedge Fund Index
1.29
1.80
10.46
Eurekahedge Long/Short Equities Hedge Fund Index
4.11
-4.78
10.28
Eurekahedge Macro Hedge Fund Index
0.11
-1.97
7.53
Eurekahedge Multi-Strategy Hedge Fund Index
1.88
-1.35
9.63
Eurekahedge Relative Value Hedge Fund Index
1.64
-0.49
11.41
Eurekahedge indices are available for download from www.eurekahedge.com/indices/hedgefundindices.asp and are updated with the latest fund returns at 23:30 GMT every day. Index values and data can be downloaded for free and subscribers can download the full list of index constituents. Please contact indices@eurekahedge.com for more information.
The Eurekahedge Hedge Fund Index gained 1.88%1 in October as optimism returned to the global economy and markets posted strong rallies. The MSCI World Index gained 8.65%2 amid moves to resolve the European debt crisis, as well as better than expected economic data from the US.
Global markets are down 7.60%3 (October YTD), while the Eurekahedge Hedge Fund Index is down 3.05%. The asset weighted Mizuho-Eurekahedge Top 100 Index4 continues its strong run for the year and is now up an impressive 1.17% in 2011.
Key highlights for October:
The Eurekahedge Hedge Fund Index witnessed its largest gain of 2011, rising 1.88% during October
The Mizuho-Eurekahedge Top 100 Index remained in positive territory for the year with a 1.17% return (October YTD)
Long/short equity funds posted their largest gain since May 2009, gaining 4.1%
Early reports indicate net positive asset flows to hedge funds in October 2011
Japanese hedge funds have attracted the largest asset flows (in percentage terms), increasing 7.5% for the year, allowing Asian hedge fund assets to remain at US$130 billion
Launch activity remained strong through 3Q 2011 with more than 150 new hedge funds launched during this time5
Main Indices
Table 1: Main Indices
Index
Oct 2011
Est1
2011
Returns
2010
Returns
Eurekahedge Hedge Fund Index
1.88
-3.05
10.76
Mizuho-Eurekahedge Top 100 Index new
0.73
1.17
10.19
Eurekahedge Fund of Funds Index
1.31
-3.96
4.64
Eurekahedge Long-Only Absolute Return Fund Index
6.21
-9.97
15.59
Eurekahedge Islamic Fund Index
3.63
-2.73
9.44
Regional Indices
Table 2: Regional Indices
Index
Oct 2011
Est1
2011
Returns
2010
Returns
Eurekahedge North American Hedge Fund Index
2.74
-0.89
13.72
Eurekahedge European Hedge Fund Index
2.83
-4.26
8.99
Eurekahedge Eastern Europe & Russia Hedge Fund Index
6.36
-11.34
16.32
Eurekahedge Japan Hedge Fund Index
-0.20
-1.13
8.30
Eurekahedge Emerging Markets Hedge Fund Index
3.38
-5.04
10.48
Eurekahedge Asia ex-Japan Hedge Fund Index
4.13
-9.05
10.09
Eurekahedge Latin American Hedge Fund Index
1.67
1.42
9.61
All regional mandates finished the month with positive returns. Managers investing in Eastern Europe & Russia witnessed the largest gains, up 6.36%. Risk appetite was given a boost early in the month as European economies moved to recapitalize their banks; the emerging markets in the region gained substantially from the positive sentiment. The Eurekahedge European Hedge Fund Index also posted healthy gains of 2.83% in October.
Among other regions, Asia ex-Japan managers posted impressive returns of 4.13%, posting gains across the different strategies and asset classes. The MSCI AC Asia Pacific Ex Japan Index was up 8.63%. North American managers also posted strong profits in October, up 2.74%, on the back of European optimism as well as better than expected economic data. The S&P 500 witnessed its largest gain in 20 years, posting returns of 10.77% in October. A number of North American managers, as well as managers across other regions, missed out on the early rally, as risk aversion from September saw them with net negative exposures at the start of October. Latin American managers also posted gains of 1.67% during the month, and continue to remain ahead of the rest for year – the Eurekahedge Latin American Hedge Fund Index is up 1.42% October YTD.
Strategy Indices
Hedge funds investing in riskier assets raked in the largest gains in October with distressed debt managers gaining 3.56% while long/short equity managers posted excellent gains of 4.11%. The US corporate credit markets were up, along with equity markets, on the back of surging risk appetite during the month. The high yield bond sector witnessed strong inflows from investors looking to take advantage of opportunities after the segment experienced two consecutive months of sell-offs. The BofA Merrill Lynch High Yield Index6 was up 5.96% during the month. Long/short equity funds posted their largest gain since May 2009 as equity market rallies were supported by US economic indicators that kept beating estimates throughout the month, which in turn were supplemented by positive movements in the European debt situation. CTA/managed futures funds were down 1.84% during month, with short-term systematic traders losing out the most. CTA/managed futures funds investing in equity index futures posted strong returns however, while managers with exposures to metals (both base & precious) and oil also witnessed gains for the month.
Table 3: Strategy Indices
Index
Oct 2011
Est1
2011
Returns
2010
Returns
Eurekahedge Arbitrage Hedge Fund Index
1.50
1.03
9.38
Eurekahedge CTA/Managed Futures Hedge Fund Index
-1.84
-3.60
12.07
Eurekahedge Distressed Debt Hedge Fund Index
3.56
-1.64
22.71
Eurekahedge Event Driven Hedge Fund Index
2.54
-4.36
15.21
Eurekahedge Fixed Income Hedge Fund Index
1.29
1.80
10.46
Eurekahedge Long/Short Equities Hedge Fund Index
4.11
-4.78
10.28
Eurekahedge Macro Hedge Fund Index
0.11
-1.97
7.53
Eurekahedge Multi-Strategy Hedge Fund Index
1.88
-1.35
9.63
Eurekahedge Relative Value Hedge Fund Index
1.64
-0.49
11.41
Eurekahedge indices are available for download from www.eurekahedge.com/indices/hedgefundindices.asp and are updated with the latest fund returns at 23:30 GMT every day. Index values and data can be downloaded for free and subscribers can download the full list of index constituents. Please contact indices@eurekahedge.com for more information.
“Hedge Fund Maturity Model“
“Understanding the Hedge Fund Maturity Model”
Download PDF Download PDF
As the Alternatives industry prepares for increased capital flows, Investors and Regulators look increasingly at hedge funds' organizational and infrastructure maturity.
This Citi Prime Finance's Business Advisory whitepaper, “Hedge Fund Maturity Model“ takes a best practices approach and lays out a framework and taxonomy for discussing hedge fund evolution. This work is based on detailed analysis and benchmarking of the different types of funds that exist in the new landscape. It attempts to highlight the key organizational, operational and technology transitions that take place at different stages of a firm's development and provides a template for understanding the inner workings of a manager as AUM grows and as the firm's scale of operations advances.
Citi Prime Finance's Business Advisory team has based this model on a comprehensive profiling exercise. This maturity model will become the foundation for our new full range of business advisory services covering management consulting, operational consulting, start-up services, and technology consulting.
Download PDF Download PDF
As the Alternatives industry prepares for increased capital flows, Investors and Regulators look increasingly at hedge funds' organizational and infrastructure maturity.
This Citi Prime Finance's Business Advisory whitepaper, “Hedge Fund Maturity Model“ takes a best practices approach and lays out a framework and taxonomy for discussing hedge fund evolution. This work is based on detailed analysis and benchmarking of the different types of funds that exist in the new landscape. It attempts to highlight the key organizational, operational and technology transitions that take place at different stages of a firm's development and provides a template for understanding the inner workings of a manager as AUM grows and as the firm's scale of operations advances.
Citi Prime Finance's Business Advisory team has based this model on a comprehensive profiling exercise. This maturity model will become the foundation for our new full range of business advisory services covering management consulting, operational consulting, start-up services, and technology consulting.
Hedge Funds Lagged Major Markets in October, Investor Sentiment Still Weak
Ω
eVestment|HFN Hedge Fund Industry Research Release
Defensive positioning and currency exposures weighed on aggregate performance in October and early indications show that redemptions again outpaced allocations in the month.
Below are early estimates1 for October hedge fund performance and asset flows. A full report will be available later in the month.
October Highlights:
The HFN Hedge Fund Aggregate Index was +2.31% in October 2011 and -3.61% on a year-to-date (YTD) basis. The S&P 500 Total Return Index (S&P) was +10.93% in October and +1.30% YTD.
Early reporting funds indicate industry redemptions again outpaced allocation in October. Should the trend hold as more funds report, hedge fund AUM will have decreased for a third consecutive month and redemptions will have outpaced allocations for the third month in the last four. Total industry AUM is estimated at $2.453 trillion at the end of October 2011.
Equity strategies, +4.19%, outperformed credit strategies, +0.94%, in October and commodity focused funds were broadly down, -2.00%, for the month. It appears FX focused funds and FX exposures within macro and managed futures strategies weighed down aggregate hedge fund returns in October. With approximately 20% of funds which have reported October performance thus far being commodity focused we expect the HFN HF Aggregate Index to show some upward bias as more funds report.
Special situations and long only strategies, along with sector specific equity funds, were the top performers of the month. Early reporting special situations strategies posted +10.80% in October while long only funds are reporting an average of +8.10%. Although all sector specific equity funds outperformed against Q3 2011, technology focused strategies did not exhibit as much upside as its peers averaging +1.05% compared to aggregate equity strategies performance of +4.19%.
All regional indices showed positive returns for October with the exception of funds focused on the Middle East/North Africa, -1.64%. Russia and Brazil were the biggest gainers averaging +10.95% and +8.22% for the month, respectively. Notably, Australia focused funds averaged +7.67% moving the group into positive territory, +4.67%, on an YTD basis.
EM equity funds outperformed EM fixed income funds, +4.41% vs. -0.22%, in October reversing a five month trend. Europe focused funds gained in October, +2.48%, but still remain underwater on an YTD basis at -5.46%.
It appears that defensive positioning from equity focused funds, muted returns from non-distressed credit and relative value strategies and losses from managed futures funds, likely due to long exposures to the US dollar, resulted in aggregate hedge fund returns significantly lagging the massive equity market rebound. There were pockets of strong performance, but during months like October it is not expected that the industry keep pace with equity markets.
Investor sentiment is still weak, but it is difficult to tell if this is due to a temporary decline in new allocations, or if redemptions are abnormally high. Given market volatility, it is likely the case that new allocations are on hold while redemptions are slightly higher than normal due to performance losses in prior months.
1Early estimates are based on funds reporting October returns as of November 9, 2011. Performance has a tendency to drift lower as more funds report. Asset estimates may drift lower, but have not shown a consistent tendency to do so.
The full eVestment|HFN October report, to be released in the third week of November, will provide details on high water marks and asset flows by strategy and region.
October 2011 and YTD Benchmark Performance
Emerging Market Benchmarks
HFN Brazil Index: +8.22% in October, -3.65% YTD
HFN China Index: +4.07% in October, -10.64% YTD
HFN India Index: +2.32% in October, -22.00% YTD
HFN Russia Index: +10.95% in October, -13.06% YTD
HFN Latin America Index: +7.45% in October, -4.47% YTD
HFN Middle East/North Africa Index: -1.64% in October, -17.30% YTD
Emerging Markets Debt: -0.22% in October, +0.39% YTD
Emerging Markets Equity: +4.41% in October, -12.40% YTD
HFN Emerging Markets Index: +3.40% in October, -12.09% YTD
Broad and Developed Market Benchmarks
HFN Asia Index: +2.55% in October, -8.26% YTD
HFN Europe Index: +2.48% in October, -5.46% YTD
HFN North America Index: +4.96% in October, -0.22% YTD
HFN Australia Index: +7.67% in October, +4.67% YTD
HFN Japan Index: +1.23% in October, -4.22% YTD
HFN U.S. Index: +4.86% in October, +0.16% YTD
Fixed Income (FI) Strategies
All Fixed Income Strategies: +0.94% in October, +3.03% YTD
Corporate Bond Strategies: +2.33% in October, +3.63% YTD
Government Bond Strategies: +0.68% in October, +2.61% YTD
HFN Distressed Index: +4.09% in October, -0.22% YTD
HFN Mortgages Index: +0.47% in October, +9.78% YTD
HFN Fixed Income Arbitrage Index: +0.01% in October, +2.72% YTD
Equity (EQ) Strategies
All Equity Strategies: +4.16% in October, -5.02% YTD
HFN Long/Short Equity Index: +4.70% in October, -4.18% YTD
HFN Market Neutral Equity Index: +2.01% in October, +0.80% YTD
HFN Short Bias Index: -9.69% in October, +2.54% YTD
Energy Equity Strategies: +7.27% in October, -6.47% YTD
Financials Equity Strategies: +3.26% in October, -6.19% YTD
Healthcare Equity Strategies: +4.55% in October, +2.57% YTD
Natural Resource Equity Strategies: +12.71% in October, -3.50% YTD
Real Estate Equity Strategies: +7.24% in October, -2.41% YTD
Technology Equity Strategies: +1.05% in October, -6.52% YTD
Commodity and Foreign Exchange (FX) Strategies
Foreign Exchange Strategies: -2.59% in October, -4.39% YTD
Financial Futures Strategies: -1.62% in October, -1.52% YTD
Commodity (Non-FX) Strategies: -2.00% in October, -2.05% YTD
HFN CTA/Managed Futures Index: -2.25% in October, -3.89% YTD
eVestment|HFN Hedge Fund Industry Research Release
Defensive positioning and currency exposures weighed on aggregate performance in October and early indications show that redemptions again outpaced allocations in the month.
Below are early estimates1 for October hedge fund performance and asset flows. A full report will be available later in the month.
October Highlights:
The HFN Hedge Fund Aggregate Index was +2.31% in October 2011 and -3.61% on a year-to-date (YTD) basis. The S&P 500 Total Return Index (S&P) was +10.93% in October and +1.30% YTD.
Early reporting funds indicate industry redemptions again outpaced allocation in October. Should the trend hold as more funds report, hedge fund AUM will have decreased for a third consecutive month and redemptions will have outpaced allocations for the third month in the last four. Total industry AUM is estimated at $2.453 trillion at the end of October 2011.
Equity strategies, +4.19%, outperformed credit strategies, +0.94%, in October and commodity focused funds were broadly down, -2.00%, for the month. It appears FX focused funds and FX exposures within macro and managed futures strategies weighed down aggregate hedge fund returns in October. With approximately 20% of funds which have reported October performance thus far being commodity focused we expect the HFN HF Aggregate Index to show some upward bias as more funds report.
Special situations and long only strategies, along with sector specific equity funds, were the top performers of the month. Early reporting special situations strategies posted +10.80% in October while long only funds are reporting an average of +8.10%. Although all sector specific equity funds outperformed against Q3 2011, technology focused strategies did not exhibit as much upside as its peers averaging +1.05% compared to aggregate equity strategies performance of +4.19%.
All regional indices showed positive returns for October with the exception of funds focused on the Middle East/North Africa, -1.64%. Russia and Brazil were the biggest gainers averaging +10.95% and +8.22% for the month, respectively. Notably, Australia focused funds averaged +7.67% moving the group into positive territory, +4.67%, on an YTD basis.
EM equity funds outperformed EM fixed income funds, +4.41% vs. -0.22%, in October reversing a five month trend. Europe focused funds gained in October, +2.48%, but still remain underwater on an YTD basis at -5.46%.
It appears that defensive positioning from equity focused funds, muted returns from non-distressed credit and relative value strategies and losses from managed futures funds, likely due to long exposures to the US dollar, resulted in aggregate hedge fund returns significantly lagging the massive equity market rebound. There were pockets of strong performance, but during months like October it is not expected that the industry keep pace with equity markets.
Investor sentiment is still weak, but it is difficult to tell if this is due to a temporary decline in new allocations, or if redemptions are abnormally high. Given market volatility, it is likely the case that new allocations are on hold while redemptions are slightly higher than normal due to performance losses in prior months.
1Early estimates are based on funds reporting October returns as of November 9, 2011. Performance has a tendency to drift lower as more funds report. Asset estimates may drift lower, but have not shown a consistent tendency to do so.
The full eVestment|HFN October report, to be released in the third week of November, will provide details on high water marks and asset flows by strategy and region.
October 2011 and YTD Benchmark Performance
Emerging Market Benchmarks
HFN Brazil Index: +8.22% in October, -3.65% YTD
HFN China Index: +4.07% in October, -10.64% YTD
HFN India Index: +2.32% in October, -22.00% YTD
HFN Russia Index: +10.95% in October, -13.06% YTD
HFN Latin America Index: +7.45% in October, -4.47% YTD
HFN Middle East/North Africa Index: -1.64% in October, -17.30% YTD
Emerging Markets Debt: -0.22% in October, +0.39% YTD
Emerging Markets Equity: +4.41% in October, -12.40% YTD
HFN Emerging Markets Index: +3.40% in October, -12.09% YTD
Broad and Developed Market Benchmarks
HFN Asia Index: +2.55% in October, -8.26% YTD
HFN Europe Index: +2.48% in October, -5.46% YTD
HFN North America Index: +4.96% in October, -0.22% YTD
HFN Australia Index: +7.67% in October, +4.67% YTD
HFN Japan Index: +1.23% in October, -4.22% YTD
HFN U.S. Index: +4.86% in October, +0.16% YTD
Fixed Income (FI) Strategies
All Fixed Income Strategies: +0.94% in October, +3.03% YTD
Corporate Bond Strategies: +2.33% in October, +3.63% YTD
Government Bond Strategies: +0.68% in October, +2.61% YTD
HFN Distressed Index: +4.09% in October, -0.22% YTD
HFN Mortgages Index: +0.47% in October, +9.78% YTD
HFN Fixed Income Arbitrage Index: +0.01% in October, +2.72% YTD
Equity (EQ) Strategies
All Equity Strategies: +4.16% in October, -5.02% YTD
HFN Long/Short Equity Index: +4.70% in October, -4.18% YTD
HFN Market Neutral Equity Index: +2.01% in October, +0.80% YTD
HFN Short Bias Index: -9.69% in October, +2.54% YTD
Energy Equity Strategies: +7.27% in October, -6.47% YTD
Financials Equity Strategies: +3.26% in October, -6.19% YTD
Healthcare Equity Strategies: +4.55% in October, +2.57% YTD
Natural Resource Equity Strategies: +12.71% in October, -3.50% YTD
Real Estate Equity Strategies: +7.24% in October, -2.41% YTD
Technology Equity Strategies: +1.05% in October, -6.52% YTD
Commodity and Foreign Exchange (FX) Strategies
Foreign Exchange Strategies: -2.59% in October, -4.39% YTD
Financial Futures Strategies: -1.62% in October, -1.52% YTD
Commodity (Non-FX) Strategies: -2.00% in October, -2.05% YTD
HFN CTA/Managed Futures Index: -2.25% in October, -3.89% YTD
Thursday, November 10, 2011
Investors Want Greater Board Responsibility and Accountability in Key Areas, 5th Annual EY Global Hedge Fund Survey Finds
Perceptions among investors and managers differ on some key aspects related to governance, fund expenses, administration, succession and capital raising
Global hedge fund managers and investors agree on key industry issues, but disagreement still exists in some important areas, according to Ernst & Young's fifth annual survey of the global hedge fund market.
The report, which juxtaposes the views of managers and investors, indicates that the two groups differ on some important matters such as governance, fund expenses, administration, succession and capital raising.
• Governance. Only 45 percent of investors said that their funds' Boards of Directors are very effective at carrying out their duties to funds, while almost 70 percent of managers feel the board is very effective.
• Fund expenses. Seventy-six percent of investors want shadow accounting, but only 35 percent are willing to pay for it.
• Administration. Three-quarters of investors said it is important that a hedge fund completely outsource valuation to an administrator, but 71 percent of managers perceive risks in this.
• Succession. Two-thirds of investors feel that having a well-articulated succession plan is important to their investment decisions, while only 38 percent of managers agree.
• Capital raising. There appears to be a lack of clarity between investors and managers about the loss of mandates. Almost 40% of managers say they do not really know why they lost a mandate. Investors point to concerns about risk management policies, inconsistency of information presented and lack of independent Board or administration..
The findings in the report, Coming of Age, were compiled by consulting firm Greenwich Associates for Ernst & Young. This year's study polled 92 hedge fund managers who manage some US$600 billion, and 42 institutional investors with over US$130 billion allocated to hedge funds.
"The recovery of the hedge fund market has been encouraging, but as the industry comes of age, investors are getting increasingly interested in governance and supervision where there remains considerable gaps in perception and in reality," says Ratan Engineer, global leader of Ernst & Young's Asset Management practice. "To continue satisfying investor demands and foster compliance, we need to ensure that hedge fund investors and managers are on the same page."
Despite several opinion gaps, investors and hedge fund managers agree on several issues, including their top concern: the impact of regulation, which is cited as the chief worry of 48 percent of hedge fund managers and 36 percent of investors.
Some key findings from the report are as follows:
Governance
Although managers and investors agree that independence is important for good governance, investors remain wary of boards' effectiveness. Sixty-eight percent of managers say the board of directors is effective in carrying out its duties, but only 45 percent of investors agree. Three-quarters of managers say the board is accountable to investors, but only 38 percent of investors say the same.
Investors want greater board accountability; they desire board responsibility for investment guideline compliance (36%), reviewing and approving NAVs (29%), resolving disputes over valuations (19%) and setting risk policies and thresholds (38%). However, most managers (69%) say that they, rather than the board, currently have responsibility and accountability for compliance with investment guidelines, and 72 percent say they establish overall risk policy and thresholds.
"Investors still feel their Boards are most interested in serving the interests of managers, rarely challenging them on issues that really matter to investors such as valuations, risk and style drift. There is a need for a closer consensus with Boards acting neither as lap dogs nor dictators to the managers," says Engineer.
Fund expenses
Higher costs for compliance, regulatory reporting and other infrastructure items coupled with the increased trend of outsourcing and extensive shadowing have resulted in margin compression across the industry. Hedge funds are increasingly evaluating how expenses should be shared between the investment manager and the fund. However, managers and investors differ on what costs should be passed through. While the majority of investors agree that it is important to perform shadow accounting, almost two-thirds of investors object to passing on the cost of shadow accounting; yet, more than one-quarter of managers said that they currently pass on these costs.
Fee and margin pressures are also causing more managers to offer graduated fees in return for larger mandates. More than twice as many hedge funds as last year say they have offered graduated fees for larger mandates.
"We see in these survey results a definite call to action for hedge fund managers to align their fund expenses to what investors expect and are willing to pay," says Arthur Tully, co-leader of Ernst & Young's Global Hedge Funds practice.
Administrators
Nearly all managers use administrators in some capacity, and nearly two-thirds of both groups agree that administrators have a positive impact on investor confidence. However, a majority of investors (74%) said it is important that managers completely outsource valuation to an administrator, but most managers (71%) perceive risks in fully outsourcing this function. Despite this, just one in four managers or investors is confident that administrators can accurately value Level 3 assets.
Shadowing is prevalent, and is often deemed to be a necessity – 76 percent of investors cite it as important. However, in many cases shadowing results in a replication of the work that administrators are performing, which then requires reconciliation between the fund's and the administrator's systems.
"The findings reveal a significant duplication of efforts and a business model that is expensive and unique to the hedge fund industry. Over the long term, hedge funds will likely re-examine their shadowing activities and begin to create a control environment that takes advantage of the administrator's strengths while building in controls to address any shortcomings," notes Tully.
Succession planning
Managers underestimate the importance to investors of a clear succession strategy. Nearly two-thirds of investors said having a well-articulated succession plan is important to their comfort level. However, only 38 percent of managers said they thought a well-articulated plan is important to retaining investors. Only 39 percent of managers said they have a well-developed succession strategy, while 50 percent of investors said they are confident with their hedge funds' succession strategies.
Hedge funds and investors also view loyalty differently. Over half of managers believe investor loyalty lies with the founding principals. However, 55 percent of investors say their primary loyalty is to individual portfolio managers.
Investors also are more likely than hedge fund managers to want founding principals to increase their equity stakes. Eighty-three percent of investors say they want founding principals to have "skin in the game" and leave significant assets with the fund upon transition. However, only 60 percent of managers say the same, instead focusing on positioning certain professionals as the face of the firm, which is important to only 17% of investors.
Capital raising/due diligence
Due diligence processes have changed. While long-term investment performance remains a priority, investors say they are more concerned with operational due diligence and internal controls. Nearly two-thirds of investors say that the most important criterion when selecting a manager is the portfolio management team. Yet only half of managers feel the same. Managers instead identify long-term performance as one of the most important criteria (72%), but only 43 percent of investors agree.
"Many managers feel they are not getting a straight answer when an investor passes on a mandate, leaving them guessing at the reasons why," comments Tully. "There is a significant opportunity to improve communications between managers and investors so managers can better provide investors with what they need to make good decisions."
About the survey
Greenwich Associates interviewed 92 hedge funds representing nearly US$600 billion in assets under management, and the views of 42 institutional investors representing US$1 trillion in assets under management. The objective of the study was to record the views and opinions of hedge funds and hedge fund investors globally, measure the views of each on the same topics and examine the two groups together. Hedge funds and hedge fund investors were asked to comment
Global hedge fund managers and investors agree on key industry issues, but disagreement still exists in some important areas, according to Ernst & Young's fifth annual survey of the global hedge fund market.
The report, which juxtaposes the views of managers and investors, indicates that the two groups differ on some important matters such as governance, fund expenses, administration, succession and capital raising.
• Governance. Only 45 percent of investors said that their funds' Boards of Directors are very effective at carrying out their duties to funds, while almost 70 percent of managers feel the board is very effective.
• Fund expenses. Seventy-six percent of investors want shadow accounting, but only 35 percent are willing to pay for it.
• Administration. Three-quarters of investors said it is important that a hedge fund completely outsource valuation to an administrator, but 71 percent of managers perceive risks in this.
• Succession. Two-thirds of investors feel that having a well-articulated succession plan is important to their investment decisions, while only 38 percent of managers agree.
• Capital raising. There appears to be a lack of clarity between investors and managers about the loss of mandates. Almost 40% of managers say they do not really know why they lost a mandate. Investors point to concerns about risk management policies, inconsistency of information presented and lack of independent Board or administration..
The findings in the report, Coming of Age, were compiled by consulting firm Greenwich Associates for Ernst & Young. This year's study polled 92 hedge fund managers who manage some US$600 billion, and 42 institutional investors with over US$130 billion allocated to hedge funds.
"The recovery of the hedge fund market has been encouraging, but as the industry comes of age, investors are getting increasingly interested in governance and supervision where there remains considerable gaps in perception and in reality," says Ratan Engineer, global leader of Ernst & Young's Asset Management practice. "To continue satisfying investor demands and foster compliance, we need to ensure that hedge fund investors and managers are on the same page."
Despite several opinion gaps, investors and hedge fund managers agree on several issues, including their top concern: the impact of regulation, which is cited as the chief worry of 48 percent of hedge fund managers and 36 percent of investors.
Some key findings from the report are as follows:
Governance
Although managers and investors agree that independence is important for good governance, investors remain wary of boards' effectiveness. Sixty-eight percent of managers say the board of directors is effective in carrying out its duties, but only 45 percent of investors agree. Three-quarters of managers say the board is accountable to investors, but only 38 percent of investors say the same.
Investors want greater board accountability; they desire board responsibility for investment guideline compliance (36%), reviewing and approving NAVs (29%), resolving disputes over valuations (19%) and setting risk policies and thresholds (38%). However, most managers (69%) say that they, rather than the board, currently have responsibility and accountability for compliance with investment guidelines, and 72 percent say they establish overall risk policy and thresholds.
"Investors still feel their Boards are most interested in serving the interests of managers, rarely challenging them on issues that really matter to investors such as valuations, risk and style drift. There is a need for a closer consensus with Boards acting neither as lap dogs nor dictators to the managers," says Engineer.
Fund expenses
Higher costs for compliance, regulatory reporting and other infrastructure items coupled with the increased trend of outsourcing and extensive shadowing have resulted in margin compression across the industry. Hedge funds are increasingly evaluating how expenses should be shared between the investment manager and the fund. However, managers and investors differ on what costs should be passed through. While the majority of investors agree that it is important to perform shadow accounting, almost two-thirds of investors object to passing on the cost of shadow accounting; yet, more than one-quarter of managers said that they currently pass on these costs.
Fee and margin pressures are also causing more managers to offer graduated fees in return for larger mandates. More than twice as many hedge funds as last year say they have offered graduated fees for larger mandates.
"We see in these survey results a definite call to action for hedge fund managers to align their fund expenses to what investors expect and are willing to pay," says Arthur Tully, co-leader of Ernst & Young's Global Hedge Funds practice.
Administrators
Nearly all managers use administrators in some capacity, and nearly two-thirds of both groups agree that administrators have a positive impact on investor confidence. However, a majority of investors (74%) said it is important that managers completely outsource valuation to an administrator, but most managers (71%) perceive risks in fully outsourcing this function. Despite this, just one in four managers or investors is confident that administrators can accurately value Level 3 assets.
Shadowing is prevalent, and is often deemed to be a necessity – 76 percent of investors cite it as important. However, in many cases shadowing results in a replication of the work that administrators are performing, which then requires reconciliation between the fund's and the administrator's systems.
"The findings reveal a significant duplication of efforts and a business model that is expensive and unique to the hedge fund industry. Over the long term, hedge funds will likely re-examine their shadowing activities and begin to create a control environment that takes advantage of the administrator's strengths while building in controls to address any shortcomings," notes Tully.
Succession planning
Managers underestimate the importance to investors of a clear succession strategy. Nearly two-thirds of investors said having a well-articulated succession plan is important to their comfort level. However, only 38 percent of managers said they thought a well-articulated plan is important to retaining investors. Only 39 percent of managers said they have a well-developed succession strategy, while 50 percent of investors said they are confident with their hedge funds' succession strategies.
Hedge funds and investors also view loyalty differently. Over half of managers believe investor loyalty lies with the founding principals. However, 55 percent of investors say their primary loyalty is to individual portfolio managers.
Investors also are more likely than hedge fund managers to want founding principals to increase their equity stakes. Eighty-three percent of investors say they want founding principals to have "skin in the game" and leave significant assets with the fund upon transition. However, only 60 percent of managers say the same, instead focusing on positioning certain professionals as the face of the firm, which is important to only 17% of investors.
Capital raising/due diligence
Due diligence processes have changed. While long-term investment performance remains a priority, investors say they are more concerned with operational due diligence and internal controls. Nearly two-thirds of investors say that the most important criterion when selecting a manager is the portfolio management team. Yet only half of managers feel the same. Managers instead identify long-term performance as one of the most important criteria (72%), but only 43 percent of investors agree.
"Many managers feel they are not getting a straight answer when an investor passes on a mandate, leaving them guessing at the reasons why," comments Tully. "There is a significant opportunity to improve communications between managers and investors so managers can better provide investors with what they need to make good decisions."
About the survey
Greenwich Associates interviewed 92 hedge funds representing nearly US$600 billion in assets under management, and the views of 42 institutional investors representing US$1 trillion in assets under management. The objective of the study was to record the views and opinions of hedge funds and hedge fund investors globally, measure the views of each on the same topics and examine the two groups together. Hedge funds and hedge fund investors were asked to comment
Hedge Funds Redeem $5.0 Billion in September, Second Outflow in Three Months
Ω
Hedge Fund Managers Remain Bearish on S&P 500, According to BarclayHedge/TrimTabs Survey
Hedge funds redeemed $5.0 billion in September, the second outflow in three months, report BarclayHedge and TrimTabs Investment Research. Industry assets decreased to $1.72 trillion, the lowest level in 12 months.
“Hedge fund investors have grown much more cautious,” says Sol Waksman, founder and President of BarclayHedge. “They pumped $58.5 billion into hedge funds between January and June, the heaviest first-half inflow since 2007. But then they withdrew money in two of three months for the first time since 2009.”
Hedge fund investors have been dumping emerging markets equities. Emerging markets hedge funds redeemed $3.7 billion in September, the third straight outflow as well as the heaviest since April 2009. Returns were ugly. The Barclay Emerging Markets Index plunged 7.7% in September, the worst return since October 2008.
“While hedge fund investors are extremely bearish on emerging markets equities, ETF investors are wildly bullish,” notes Leon Mirochnik, Research Analyst at TrimTabs. “The flow data we track daily shows that emerging markets ETFs raked in $5.1 billion in the past four weeks. Performance has proven impressive. Some emerging markets ETFs returned as much as 19% in less than a month.”
The latest TrimTabs/BarclayHedge Survey of Hedge Fund Managers reveals that managers remain bearish on domestic equities, although they are less downbeat than four weeks ago. Bearish sentiment on the S&P 500 decreased to 41% in October from 57% in September, while bullish sentiment increased to 35% from 16%. The survey also reveals that hedge fund managers are most upbeat on the Russell 2000 Value Index and the Russell Global Large Cap Index, while they are least upbeat on the Russell 2000 Growth Index.
“This result does not surprise us,” notes Mirochnik. “The Fed is in the process of buying $400 billion in long-dated Treasuries and selling an equal sum in the short end, while markets are especially volatile and uncertain as the debt crisis in Europe rages. In an environment like this, it makes sense to us that hedge funds managers are much more interested in large caps and dividend yield than growth.”
Hedge Fund Managers Remain Bearish on S&P 500, According to BarclayHedge/TrimTabs Survey
Hedge funds redeemed $5.0 billion in September, the second outflow in three months, report BarclayHedge and TrimTabs Investment Research. Industry assets decreased to $1.72 trillion, the lowest level in 12 months.
“Hedge fund investors have grown much more cautious,” says Sol Waksman, founder and President of BarclayHedge. “They pumped $58.5 billion into hedge funds between January and June, the heaviest first-half inflow since 2007. But then they withdrew money in two of three months for the first time since 2009.”
Hedge fund investors have been dumping emerging markets equities. Emerging markets hedge funds redeemed $3.7 billion in September, the third straight outflow as well as the heaviest since April 2009. Returns were ugly. The Barclay Emerging Markets Index plunged 7.7% in September, the worst return since October 2008.
“While hedge fund investors are extremely bearish on emerging markets equities, ETF investors are wildly bullish,” notes Leon Mirochnik, Research Analyst at TrimTabs. “The flow data we track daily shows that emerging markets ETFs raked in $5.1 billion in the past four weeks. Performance has proven impressive. Some emerging markets ETFs returned as much as 19% in less than a month.”
The latest TrimTabs/BarclayHedge Survey of Hedge Fund Managers reveals that managers remain bearish on domestic equities, although they are less downbeat than four weeks ago. Bearish sentiment on the S&P 500 decreased to 41% in October from 57% in September, while bullish sentiment increased to 35% from 16%. The survey also reveals that hedge fund managers are most upbeat on the Russell 2000 Value Index and the Russell Global Large Cap Index, while they are least upbeat on the Russell 2000 Growth Index.
“This result does not surprise us,” notes Mirochnik. “The Fed is in the process of buying $400 billion in long-dated Treasuries and selling an equal sum in the short end, while markets are especially volatile and uncertain as the debt crisis in Europe rages. In an environment like this, it makes sense to us that hedge funds managers are much more interested in large caps and dividend yield than growth.”
Monday, November 7, 2011
Emerging Hedge Fund and CTA Managers Still in Positive Territory
Ω
New Opalesque Emanagers Index: Emerging Hedge Fund and CTA Managers Still in Positive Territory Year to Date, Returned 60% Since 2009
Opalesque Ltd., a leading provider of online information services to the alternative investment industry, today announced the official launch of the Opalesque Solutions Emanagers Database and Index series. The Opalesque Emanagers Total Index is based on currently 293 emerging hedge fund and managed futures fund managers listed in the Emanagers database, the industry's only database dedicated exclusively to hedge fund management firms less than 48 months old and with assets under management of less than $600 million at the time of the firm's inception.
The Emanagers Total Index, currently consisting of 198 hedge funds and 94 managed futures funds, lost 1.91% in September and is up 0.37% year to date. Since January 2009, the index has performed exceptionally well, returning 34.5% in 2009 and 18.73% in 2010, adding to a cumulative return of 60.29%. Funds listed in the Emanagers Database thus managed to outperform both the HFRI Fund Weighted Composite Index and the MSCI World Index every year since 2009.
To provide a more detailed picture and allow for reasonable comparison, Opalesque also created two sub-indices, namely the Emanagers Hedge Fund Index and the Emanagers CTA Index. Opalesque data shows that although managed futures strategies and hedge fund strategies tend to perform almost independently in normal market conditions, the correlation changes to a strong negative in times of market turmoil, like the ones experienced in late 2008 to early 2009, as well as the summer months of 2011. This provides strong evidence that a mix of hedge fund and managed futures strategies is a very useful portfolio diversifier in the long run.
Performance analysis of Opalesque sub-indices slightly changes the picture in the short run: Emerging hedge fund managers underperformed the HFRI year to date, with a cumulative loss of -5.32% compared to -4.85%. Interestingly, this underperformance arose in the months of July to September this year. Opalesque assume the reason for the bigger drawdown this summer is the overall higher performance volatility of Emanagers hedge funds (7.94) compared to HFRI funds (6.46).
In the long run, however, Emanagers hedge funds outperformed the HFRI in 14 of the 21 months tracked Opalesque so far, returning 17% in 2010 and 37.6% in 2009, adding to a cumulative return of 52.5%, compared to 25.9% for the HFRI. This supports previous empirical research (e.g. Neuberger Berman (2011) and Infiniti (2009)) showing that emerging hedge fund managers tend to outperform their established peers.
Emanagers managed futures funds had an outstanding year, returning 12.2% through September. This comes after a performance of 19.2% in 2010 and 20.5% in 2009. In a nutshell, Emanagers managed futures funds have outperformed the Barclay CTA Index every year so far.
About Opalesque:
In 2003, with the publication of its daily Alternative Market Briefing, Opalesque successfully launched an information revolution in the hedge fund media space: "Opalesque changed the world by bringing transparency where there was opacity and by delivering an accurate professional reporting service." - Nigel Blanchard, Culross. This hybrid financial news service, which combines proprietary industry news stories and filtered third party reports, has been credited by many industry insiders with delivering precise, accurate, and vital information to a notoriously guarded audience.
Each week, Opalesque sends out over 700,000 editions of its seventeen publications to a global readership in over 170 countries. Opalesque is the only daily hedge fund publisher which is actually read by the elite managers themselves.
New Opalesque Emanagers Index: Emerging Hedge Fund and CTA Managers Still in Positive Territory Year to Date, Returned 60% Since 2009
Opalesque Ltd., a leading provider of online information services to the alternative investment industry, today announced the official launch of the Opalesque Solutions Emanagers Database and Index series. The Opalesque Emanagers Total Index is based on currently 293 emerging hedge fund and managed futures fund managers listed in the Emanagers database, the industry's only database dedicated exclusively to hedge fund management firms less than 48 months old and with assets under management of less than $600 million at the time of the firm's inception.
The Emanagers Total Index, currently consisting of 198 hedge funds and 94 managed futures funds, lost 1.91% in September and is up 0.37% year to date. Since January 2009, the index has performed exceptionally well, returning 34.5% in 2009 and 18.73% in 2010, adding to a cumulative return of 60.29%. Funds listed in the Emanagers Database thus managed to outperform both the HFRI Fund Weighted Composite Index and the MSCI World Index every year since 2009.
To provide a more detailed picture and allow for reasonable comparison, Opalesque also created two sub-indices, namely the Emanagers Hedge Fund Index and the Emanagers CTA Index. Opalesque data shows that although managed futures strategies and hedge fund strategies tend to perform almost independently in normal market conditions, the correlation changes to a strong negative in times of market turmoil, like the ones experienced in late 2008 to early 2009, as well as the summer months of 2011. This provides strong evidence that a mix of hedge fund and managed futures strategies is a very useful portfolio diversifier in the long run.
Performance analysis of Opalesque sub-indices slightly changes the picture in the short run: Emerging hedge fund managers underperformed the HFRI year to date, with a cumulative loss of -5.32% compared to -4.85%. Interestingly, this underperformance arose in the months of July to September this year. Opalesque assume the reason for the bigger drawdown this summer is the overall higher performance volatility of Emanagers hedge funds (7.94) compared to HFRI funds (6.46).
In the long run, however, Emanagers hedge funds outperformed the HFRI in 14 of the 21 months tracked Opalesque so far, returning 17% in 2010 and 37.6% in 2009, adding to a cumulative return of 52.5%, compared to 25.9% for the HFRI. This supports previous empirical research (e.g. Neuberger Berman (2011) and Infiniti (2009)) showing that emerging hedge fund managers tend to outperform their established peers.
Emanagers managed futures funds had an outstanding year, returning 12.2% through September. This comes after a performance of 19.2% in 2010 and 20.5% in 2009. In a nutshell, Emanagers managed futures funds have outperformed the Barclay CTA Index every year so far.
About Opalesque:
In 2003, with the publication of its daily Alternative Market Briefing, Opalesque successfully launched an information revolution in the hedge fund media space: "Opalesque changed the world by bringing transparency where there was opacity and by delivering an accurate professional reporting service." - Nigel Blanchard, Culross. This hybrid financial news service, which combines proprietary industry news stories and filtered third party reports, has been credited by many industry insiders with delivering precise, accurate, and vital information to a notoriously guarded audience.
Each week, Opalesque sends out over 700,000 editions of its seventeen publications to a global readership in over 170 countries. Opalesque is the only daily hedge fund publisher which is actually read by the elite managers themselves.
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