Dow Jones Credit Suisse Hedge Fund Indices For April

The Dow Jones Credit Suisse Core Hedge Fund Index closed down 0.33% in April as most of the index component strategies reported negative results for April.

Early estimates indicate the Dow Jones Credit Suisse Hedge Fund Index (“Broad Index”) finished relatively flat in April (based on 74% of assets in the index reporting).

Insight into March Hedge Fund Performance

The Dow Jones Credit Suisse Hedge Fund Index finished up 0.05% in March. A new monthly commentary offers insight into hedge fund performance through the month of March. Some key findings from the report include:



• _ Hedge funds, as measured by the Dow Jones Credit Suisse Hedge Fund Index, finished March up 0.05%, with 5 out of 10 strategies in positive territory;

• _ In total, the industry saw estimated outflows of approximately $1.33 billion in March, bringing overall assets under management for the industry to approximately $1.75 trillion;

• _ The Convertible Arbitrage and Equity Market Neutral sectors experienced the largest asset inflows on a percentage basis in March, with inflows of 1.18% and 0.76% from February 2012 levels, respectively;

• _ Long/Short Equity was positive for the third month in a row. Three-month equity market correlation continued its downward descent, which was beneficial for both the long and short sides of the book and provided greater upside capture than Long/Short Equity funds have had in the past few months;

• _ The long Emerging Market FX themes, which were positive sources of Global Macro manager performance for January and February, partially reversed on the month leading to lower performance for the sector; and

• _ On the relative value front, managers showed mostly positive performance in March. Fixed Income Arbitrage managers posted gains as managers have, in some instances, been able to produce positive performance through tactical trading approaches

HEDGE FUNDS TRADE IN NARROW RANGE IN APRIL

Hedge funds posted a narrow decline to begin 2Q12, with the HFRI Fund Weighted Composite Index declining by -0.36 percent in April, according to data released today by HFR (Hedge Fund Research, Inc.), the leading provider of data, indices and analysis of the global hedge fund industry. The April decline follows a 1Q12 gain of +4.79 percent, the best 1Q performance since 2006, and concludes a month dominated by the resurgence of investor concern with regard to the European sovereign debt crisis and uncertainty surrounding the outcome and implications of European elections. Total hedge fund capital increased to a record level of $2.13 Trillion in 1Q12 on performance and continuing investor inflows.

Hedge fund performance by strategy was mixed for April, underscoring the varied themes and drivers of performance throughout the month. The HFRI Relative Value Arbitrage Index posted a gain of +0.21 percent, the fifth consecutive monthly gain for this index, with positive contributions from Fixed Income Arbitrage, Volatility Arbitrage and Asset Backed exposures. Equity Hedge was the weakest area of performance, posting a decline of -0.57 percent, the first monthly decline for this index in 2012, paring the YTD gain for the HFRI Equity Hedge Index to +6.33 percent. Macro strategies also posted a decline for April, with the HFRI Macro Index declining by -0.35 percent, as declines across Systematic (CTA) and Discretionary strategies only partially offset gains in Active Trading funds. The HFRI Event Driven Index posted a narrow decline of -0.16 percent, also the first monthly decline of 2012, as gains in Activist and Credit Arbitrage strategies were offset by losses in Distressed and Special Situations funds. Funds of Hedge Funds posted a decline of -0.26 percent in April, also the first monthly decline of 2012, but the second consecutive month in which the HFRI FOF Index has outperformed the single managers in the HFRI Fund Weighted Composite Index. Despite modest redemptions in 1Q12, assets invested in hedge funds via FOF increased to $644 Billion as a result of positive performance in 1Q12.

“April hedge fund performance marked a transition from the equity beta driven gains in the first quarter to an environment more similar to the risk-averse environment which dominated 2011,” stated Kenneth J. Heinz, President of HFR. “While the transition has contributed to modest declines in Equity and Macro strategies in April, many funds which have maintained conservative positioning are now in the process of adjusting exposures through the current environment. Hedge fund gains throughout 2012 are likely to continue across a more diverse continuum of assets and strategies, with these complementing core and tactical equity markets exposures industry wide.”

Hedge Funds Take in $2.3 Billion in March

In 2012’s First Quarter, Hedge Funds Had $3.2 Billion in Outflows and Underperformed the S&P 500. Nearly Half of Hedge Fund Managers Expect S&P 500 in 2012 to Retreat Below 2011 Year-End Level



BarclayHedge and TrimTabs Investment Research reported today that the hedge fund industry added $2.3 billion (0.1% of assets) in March, down from a $6.8 billion inflow in February and only the fourth monthly inflow since July 2011. Based on data from 3,034 funds, the March TrimTabs/BarclayHedge Hedge Fund Flow Report estimated that industry assets stood at $1.8 trillion in March, up 2.2% from $1.7 trillion in February.

In the first quarter of 2012, ended March 31, TrimTabs and BarclayHedge reported industry outflows amounted to $3.2 billion. In the same period, the industry managed a mere 5.61% gain, while the S&P 500 surged 12%. “Hedge fund industry returns continued to lag popular financial industry benchmarks,” said Charles Biderman, founder and CEO of TrimTabs.

Asset growth in the hedge fund industry has been in a perpetual slide since July 2007, in contrast to its impressive year-over-year growth in assets after 2000, according to TrimTabs and BarclayHedge. “Though asset growth rebounded in the summer of 2009, it petered out in May of 2010 and has been sliding ever since, even as equity market asset prices remained resilient and surged strongly in Q1 2012,” said Sol Waksman, founder and president of BarclayHedge.

Two hedge fund investment strategies are attracting more investors, according to the TrimTabs and BarclayHedge report. “Macro and Fixed Income hedge funds are the only strategies that have seen sizable inflows as a percentage of assets over the past three years,” said Leon Mirochnik, an analyst at TrimTabs. “Hedge fund investors see these strategies as offering the best defense against unpredictable geopolitical issues and global expansionary monetary policies,” he said.

Hedge funds based in Japan have been very popular in the past year, generating an inflow of 15.4% of assets despite losing 4.3%. “Apparently investors were betting they could capitalize on an appreciating yen over the past 12 months, but the yen lost 0.9% against the U.S. dollar in that time period,” Mirochnik said.

Meanwhile, the April 2012 TrimTabs/BarclayHedge Survey of Hedge Fund Managers found that nearly half the hedge fund managers surveyed believe that sometime this year the S&P 500 will trade below 1257, where the index stood at the end of 2011. A plurality, 31.3%, of the 68 managers surveyed in the third week of April think the S&P 500 will not fall below 1257 this year.

The managers surveyed did not show a strong conviction about the S&P 500 performance this month. Opinions were 33.8% bullish, 35.3% neutral, and 30.9% bearish. Bearishness inched upward to a five-month high, the markedly neutral tone of March faded in April, and a small rise in bullishness this month still remained far below the levels of December 2011 through February 2012, the survey found.

While sentiment on the U.S. Dollar Index saw only minor changes, hedge fund managers’ outlook on 10-Year Treasuries saw dramatic shifts in April: Bearishness shrank to 18.5% from 48.4% in March, neutral sentiment jumped to 63.1% from 38.7%, and bullishness rose to 18.5% from 12.9%, the survey found.

HEDGE FUNDS DECLINED -0.38% IN APRIL

Hennessee Group LLC, an adviser to hedge fund investors, announced today that the Hennessee Hedge Fund Index declined -0.38% in April (+4.02% YTD), while the S&P 500 fell -0.75% (+11.16% YTD), the Dow Jones Industrial Average increased +0.01% (+8.16% YTD), and the NASDAQ Composite Index declined -1.46% (+16.94%). Bonds rallied, as the Barclays Aggregate Bond Index increased +1.11% (+1.42% YTD) and the Barclays High Yield Credit Bond Index advanced +1.05% (+6.44%).

“Hedge funds declined in April, along with equity markets, due to renewed concerns that the European sovereign-debt crisis would worsen and global economic growth would slow,” commented Charles Gradante, Managing Principal of Hennessee Group. “After a strong rally in the first quarter, hedge fund managers were positioned cautiously with lower net and gross exposures. However, managers still suffered losses as volatility spiked and correlations among securities increased regardless of fundamentals.”

“After a strong first quarter, investor risk appetite has started to wane. Managers have shifted their focus back to the Eurozone where they are concerned about the combination of economic recession and sovereign debt issues,” said Lee Hennessee, Managing Principal of Hennessee Group. “In addition, there are concerns about the European elections. Those elected will attempt to reduce austerity and stop the cuts in government spending, which will add additional uncertainty and complexity to fiscal issues.”

Equity long/short posted losses in April, as the Hennessee Long/Short Equity Index declined -0.61% (+3.88% YTD). Equity markets also declined, with the S&P 500 ending the month down -0.75%. Performance was mixed across sectors, with energy and cyclicals posting advances while financials and technology posted declines. Equity markets had been down significantly more, but pared losses with four straight days of gains at month end. Economic data in April suggested the economy may slow in the summer months and caused the market to pull back from the four-year high reached in early April. Worries about Europe’s debt troubles and concerns about U.S. economic growth brought the return of the “risk on, risk off” trade. Volatility picked up in April, with six triple-digit moves in the Dow Jones Industrial Average. Correlation between individual stocks rose to 0.38 from 0.12 in early February. Implied correlation is now at 0.48, up 20% in the past month and near levels seen in the middle of 2011. Managers are cautiously optimistic as valuation gaps between long and short opportunities are significant. However, there are many macro concerns and most expect politics and fiscal issues to result in greater volatility for the rest of the year. Both gross and net exposures have declined due to the combination of profit taking after a strong first quarter rally and increased caution going into summer.

“Investors should start to focus on the U.S. political situation,” commented Charles Gradante. “The economy faces a ‘Fiscal Cliff’ next year. At the beginning of 2013, the Bush tax cuts and payroll tax reduction are set to expire. In addition, there are mandated spending cuts that become effective as a result of the debt ceiling negotiation last year. If these policies are not extended, they have the potential to subtract -3% from GDP. To make matters worse, it also looks like they will have to re-address the U.S. debt ceiling as early as this summer.”

The Hennessee Arbitrage/Event Driven Index declined -0.04% (+4.67% YTD) in April. Risk assets were generally weaker in April with credit and equity markets recovering towards the end of the month. Bonds rallied, as the Barclays Aggregate Bond Index increased +1.11% (+1.42% YTD) and the Barclays High Yield Credit Bond Index advanced +1.05% (+6.44%). Treasuries posted strong gains as the yield on the 10 year declined from 2.23% to 1.95%. High yield bonds also performed well, but the spread over Treasuries widened 5 basis points from 5.99% to 6.05%. The Hennessee Distressed Index fell -1.02% in April (+4.44% YTD). The flight to quality resulted in losses for several core distressed positions in April. The Hennessee Merger Arbitrage Index decreased -0.28% in April (+2.73% YTD). Managers posted small losses as deal spreads widened amid heighted volatility. The Hennessee Convertible Arbitrage Index returned +0.20% (+4.89% YTD). The Merrill Lynch Convertible Index registered a small cheapening but valuations were stable, outperforming other risk assess. Tighter spreads and equity hedges drove gains. New issuance was respectable, amounting to $3.4 billion globally.

“While gold prices have been stuck in a trading range, many managers remain bullish for the long term. The U.S. dollar has maintained its strength as Europe continues to struggle, which has put pressure on gold prices,” commented Charles Gradante. “However, central banks, including China and other emerging economies, have increased their purchases of gold substantially in recent months. There is significant new demand which is not being reflected in gold prices yet.”

The Hennessee Global/Macro Index declined -0.41% (+3.69% YTD) in April. Global equities experienced losses, as the MSCI All-Country World Index fell -1.1% in April. International hedge fund managers posted losses, as the Hennessee International Index fell -0.51% (+4.97% YTD). Emerging market also declined in April with the MSCI Emerging Markets Index falling -1.42% (+13.65%). Hedge fund managers experienced losses in equities and currencies, as the Hennessee Emerging Market Index declined -0.75% (+4.16% YTD). Gains in China were offset by losses in Latin America and emerging Europe. Macro managers were up modestly in April, as the Hennessee Macro Index advanced +0.10% (+0.68% YTD). Macro strategies continue to struggle as managers experience difficulty taking advantage of trends. Long positions in the Euro-Bund and 10-year U.S. Treasury Note were significant contributors to positive performance. U.S. yields declined sharply with the yield on the 2-year falling 6 basis points from 0.33% to 0.27% and the yield on the 10-year Treasury falling 28 basis points from 2.23% to 1.95%. The U.S. dollar declined against the Japanese Yen and British Pound, but strengthened against the Euro. Commodities were mixed, with the Dow Jones-UBS Commodity Index falling -0.43% for the month of April. Gold prices fell slightly as the dollar strengthened.

Large hedge funds gain 0.47% in April, smaller funds finish in negative territory

Hedge fund returns were flat to slightly negative in April as most regions and strategies witnessed marginal movements during the month. As managers provided downturn protection amid declining markets globally, the Eurekahedge Hedge Fund Index1 was down 0.07% and the MSCI World Index2 declined 1.62%.

Key highlights for April 2012:

The asset-weighted Mizuho-Eurekahedge Top 100 Index increased 0.28% in April 2012, confirming a better month for larger funds._

Relative value and fixed income hedge funds are a bright light in the industry - they have now witnessed five consecutive months of positive returns with gains of 5.91% and 4.56% respectively._

Launch activity has remained strong in 2012 with more than 150 funds launched worldwide as at the end of April 2012._

Assets in distressed debt hedge funds were back above US$60 billion._

The Eurekahedge Latin American Hedge Fund Index saw a surge of 6.45% at end-April 2012.Negative returns in April affected most regional hedge funds as market sentiment became more risk-averse leading to declines across global markets. After a short few months of strong growth, attention returned to European debt issues, soft US economic data and slowing Chinese growth. Although most regional hedge fund indices ended the month in the red, they delivered notable outperformance to their respective underlying market indices.

The Eurekahedge North American Hedge Fund Index finished the month dropping by 0.07%, beating the S&P 500 by 0.68%. Managers with positive returns banked on upbeat corporate earnings and the end of April saw a surge caused by speculation of further stimulus from the US Federal Reserve. European hedge funds provided significant outperformance during the month with declining only 0.23% while the MSCI Europe Index lost 2.91%.

Emerging market hedge funds were up 0.54% in the month, bucking the trend from other regions and underlying markets and the MSCI Emerging Markets Index was down 0.96% in April. Latin American hedge funds once again delivered substantial outperformance with gains of 1.09% while the Brazil IBovespa saw sharp losses of 4.17% while the Eurekahedge Latin American Hedge Fund Index shot up 6.45% by end-April 2012.



Strategy Indices

Most strategies were marginally positive in April with risk neutral and fixed income strategies posting the highest gains. The Eurekahedge Relative Value Hedge Fund Index increased 0.82% backed up by profits made from market neutral trades within the bond space and from special situations. Fixed income managers captured healthy returns of 0.43% as weak growth continued to weigh on many countries, sending more inflows into bond products. Australia and Brazil for example, displayed evidence of a weakening domestic economy leading central banks to soften monetary policy. Unemployment in Spain spiked to nearly 25% prompting S&P to downgrade the country’s debt two notches to BBB+. Multi-strategy hedge funds also registered a net gain for the month of 0.39% as most managers kept diversified portfolios and adopted short term investment styles. CTAs on the other hand witnessed a flat month attributed from losses in long US dollar, commodity and equity positions.


_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.

Largest Funds Continue to Dominate Hedge Fund Industry, According to PerTrac’s Annual Database Study

Ranks of Funds of Hedge Funds Continue to Thin for All but Billion-Dollar-Plus Firms,US and UK Funds Manage Nearly 68% of Reported Assets, Study Finds

The “billion dollar club” is still the great colossus of the hedge fund world. Single-manager hedge funds with greater than $1 billion under management account for a mere 3.9% of reporting funds, but they control about 60% of the total single-manager hedge fund assets, according to a study conducted by PerTrac, the provider of analytics, risk and communications software for hedge funds, funds of funds and other institutional investors.According to the study, 322 single-manager hedge funds reported having AUMs in excess of $1 billion in 2011, for a total of $1.08 trillion in AUM. Despite their dominance, there was only a 1.40% year-over-year increase in the assets of billion-dollar-plus funds in 2011 based on those that reported their results. (Some funds do not report to any database).

“The flight to size continues for hedge fund investors,” said Jed Alpert, Managing Director of Global Marketing at PerTrac. “Investors continue to view larger hedge funds as a better, safer bet even though industry data, including our own, indicates that smaller funds have generally outperformed larger ones.”

The PerTrac study, now in its 9th edition, 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, as approximately 54% of hedge funds reported to only one database in 2011, a fact highlighted in this year’s 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 institutional bias towards size also applied to funds of hedge funds (FoHFs). The number of reporting FoHFs managing greater than $1 billion in assets climbed by nearly 18% in 2011. Yet overall, the number of FoHFs declined 4.80% in 2011 to 3,388.

The study also found that single-manager hedge fund and FoHF managers located in the United States manage approximately $950 billion, or 42.3% of the total reported AUM. The United Kingdom has the second highest amount, with $574 billion in assets under management, or 25.6% of the total reported AUM. The study also found among reporting funds that:

-Overall, the number of single-manager hedge funds and FoHFs increased to 13,395, a growth of 3.73% from 2010 to 2011.

-The AUM of single-manager hedge funds and FoHFs expanded by 3.37% to reach $2.245 trillion at the end of 2011.

-More than half of all single-manager hedge funds and FoHFs are denominated in US Dollars and 77% are denominated in either US Dollars or Euros.

-The number of single-manager hedge funds increased by 6.98% in 2011, reaching 10,007 funds.

-The AUM of single-manager hedge funds was $1.798 trillion at the end of 2011, an increase of 4.2% from 2010.