New York (HedgeCo.net) – “Hedge funds performed as advertised in October—they hedged,” said Nadia Papagiannis, Morningstar alternative investment strategist. “Though the economy may be recovering, hedge fund managers appear positioned for a reversal.”

However, hedge funds in the Morningstar Europe Equity hedge fund category had inflows of $847 million.

Hedge funds following arbitrage strategies and buying distressed securities have enjoyed a tremendous year, as they continue to profit from assets acquired at fire-sale prices in late 2008.  Profits are starting to narrow, however, as the discounts on assets are diminishing.

Certain emerging market countries, such as China and Russia, posted significant gains, the performance of emerging market hedge funds depended on country allocation.  In developed markets, European and Asian equity markets declined less than the U.S. equity market, but this did not carry over to hedge funds.

Hedge funds that make make macro-economic bets in equities, fixed-income, currencies, and commodities benefited from the appreciation of gold, which reached record highs in October, moves in the Australian dollar versus the U.S. dollar, and price trends in global government bonds.  Price-trend-following funds were hit by a reversal in the trends in equity and currency markets in late October, though, resulting in overall losses.

Meanwhile, Eurekahedge reported global hedge fund inflows totaling $10.2 billion for October, while performance-based losses were $2.4 billion. Total hedge fund assets under management (AUM) have increased by $7.8 billion in October, bringing hedge fund AUM to a total of $1.45 trillion.

Alex Akesson
Editor for HedgeCo.net
alex@hedgeco.net
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