Most hedge funds recorded gains averaging close to or over 2% during August, with European managers (2.6%) delivering the best gains, on average, according to preliminary reporting from Eurekahedge.
North American and Latin American funds ended the month with gains averaging 1.8% and 2.1%. Asian managers, on the other hand, underperformed most others, with Japan-specific funds up 0.7% and their Asia ex-Japan-investing counterparts down 1.1%.
August marked the 6th consecutive month of positive returns for hedge funds (up 13.1% YTD); hedge funds up 2.6% for the last 12 months, while the MSCI AC World Index is down 18.5% for the same period.
Net inflows for hedge funds reached $4.5 billion in August, with over 50% of the reporting funds attracting capital during the month.
However, hedge fund research specialist Charles Gradante of Hennessee Group said, “Government spending continues to drive demand, while the private sector has been largely absent. This dynamic is not sustainable. In addition, equity markets are no longer undervalued. With September being one of the worst months historically, we are cautious of a pull back in the markets.”
“Hedge funds continued to lag the surging equity markets, as we would expect given their short portfolios and hedges,” said Lee Hennessee, Managing Principal of Hennessee Group. “Managers have opened up their exposures to benefit from the market rally. However, given the uncertainty around the economy, most managers are looking to generate gains due to stock selection, rather than beta exposure as there is potential for a correction.”
Meanwhile, early estimates from Credit Suisse/Tremont Hedge Fund Index show hedge funds will finish up 1.68% for August. Managers with net short portfolios appeared to perform better in August than they have during previous months of the rally. As a whole, Long/Short Equity managers had a generally positive month, finishing up an estimated 1.42%, while Emerging Markets returned an estimated 2.18%.
Event Driven managers returned approximately +2.46% for the month as managers continued to take advantage of tailwinds in equity and credit markets in the distressed environment. The majority of investment opportunities in the space currently appear to coming from the special situations area.
Managed Futures posted returns of 0.79%, representing their second positive month of performance so far this year (the sector was up +0.85% in May). Many managers in the strategy have struggled for most of this year, although trend followers appear to be beginning to show profits as models gain more traction. The Global Macro sector also experienced positive returns in August, posting a +0.94% gain as commodities-focused managers capitalized on rallies in metals, sugar and certain other softs.
Convertible Arbitrage extended its run of positive performance to eight consecutive months, finishing up 3.37% in August, as opportunities in the space remained strong. Performance was muted, however, in comparison to returns of the past four months, when the strategy posted consecutive monthly returns of greater than 4%.
The US Federal Reserve and US Treasury announced an extension of its $200 billion term asset-backed securities loan facility (TALF) program, adding an additional three to six months from its original end-of-year expiration date. This was welcome news to many fixed income investors and relative value managers who had an overall positive month. Fixed Income Arbitrage managers are now up 2.39% year to date.
There were over 300 new hedge fund launches and 400 fund closures confirmed by Eurekahedge so far this year.
