West Palm Beach (HedgeCo.net) – Morningstar, Inc. reported that hedge funds reported the worst losses in the Morningstar Hedge Fund Index’s history, which began in January 2003.

In September, the Morningstar 1000 Hedge Fund index dropped 7.87%, more than double August`s losses. Hedge funds entered the third quarter virtually flat for the year, but the index`s 13.17% third-quarter drop dragged year-to-date performance into the red.

"In September, the financial world as we know it turned upside down. We saw a shakeout in the hedge fund industry all around the globe. Hedge funds experienced poor borrowing, hedging, and trading conditions while liquidity dried up and volatility skyrocketed," said Morningstar hedge fund analyst Nadia Van Dalen.

Hedge funds were affected by extreme and unforeseen events during the month, including failures and takeovers of mortgage agencies, banks, insurers, and prime brokers.

As the world watched in anticipation of a U.S. government bailout, the global equity markets roiled. The Morningstar Global Equity Hedge Fund Index lost 11.22% in September. The Morningstar Europe Equity Hedge Fund Index declined 9.62% during the month but outperformed the MSCI Europe Index by more than five percentage points, while the Morningstar US Equity Hedge Fund Index underperformed the SandP 500 Index by more than one percentage point.

Developed Asia and emerging markets equity hedge funds managed to avoid some of the market losses, as these indexes outperformed the MSCI AC Asia Index and the MSCI Emerging Markets Index by about five percentage points in September. For the year to date, however, these emerging markets funds have taken more than a 30% hit.

Hedging proved difficult for hedge funds this month. The SEC and the FSA announced temporary bans on shorting financial stocks. Many convertible arbitrage funds taking long positions in financial sector convertible bonds were unable to hedge with short stock positions. The Morningstar Convertible Arbitrage Hedge Fund Index lost 12.39% in September. Fortunately, some equity arbitrage hedge funds were able to avoid financials. The Morningstar Equity Arbitrage Hedge Fund Index lost only 4.60%.

Debt-oriented hedge funds also experienced hedging problems. Credit default swaps, a common way to hedge bond exposure, became more expensive and less attractive with fears of default and counterparty risk. Both the Morningstar Debt Arbitrage and the Morningstar Global Debt Hedge Fund Indexes underperformed global and U.S. bonds, losing 4.39% and 7.50% respectively. The Morningstar Distressed Securities Hedge Fund Index closed the month down 6.21% as risky debt yields rose.

Global trend following hedge funds actually profited from some of the downward trends in the market, as these funds trade stock index futures as well as interest rates, currencies, and commodities. The Morningstar Global Trend Hedge Fund Index lost only 1.26% in September, the best-performing category other than short equity. The Morningstar Global Non-trend Index, comprised of funds with a more macro-economic approach, slid only 1.56%.

Funds of funds performed in line with the Morningstar 1000 Hedge Fund Index, outperforming the index by about 20 basis points in September, but falling slightly short for the quarter and year to date. The Morningstar Multistrategy Hedge Fund Index underperformed the overall index by about 200 basis points in September.

Alex Akesson

Editor for HedgeCo.Net
Email: alex@hedgeco.net

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West Palm Beach (HedgeCo.net) – UK asset management group and hedge fund investor Aviva plc ("Aviva") is holding an investor and analyst briefing to announce the strengthening of its protection against further falls in global equity markets through increased hedges.

Such that even in the event of a further 40% fall in equity markets, its surplus regulatory capital would only be reduced by £0.7 billion ($1.1 billion). This is a significant improvement when contrasted with the position as at 30 June 2008 when a 40% fall in equity markets would have reduced the surplus regulatory capital by £1.3 billion ($2.2 billion).

"We are focused on accelerating transformational change to deliver a unified and more profitable company," Andrew Moss, CEO, commented, "This is clearly demonstrated both by the creation of Aviva Investors and the reshaping of our UK General Insurance business to focus on insurance excellence and deliver the promise of scale."

Moss also said, "We are pleased to confirm that in the face of the recent market turmoil, Aviva’s capital position remains strong. Our active capital management ensures the group remains robust in the face of the current economic adversity, providing security for our customers and investors alike, and ensuring that the group is well positioned as confidence returns."

Moss will take the opportunity to provide an update on Aviva’s continuing strong position in the current economic environment with Aviva’s surplus regulatory capital estimated to be £1.9 billion ($3.2 billion) at 30 September 2008, compared to £1.8 billion ($3 billion) at 30 June 2008.

Alex Akesson

Editor for HedgeCo.Net
Email: alex@hedgeco.net

HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds!

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CityWire.co.uk- Skandia has launched an offshore protected fund of funds which aims to offer capital protection alongside investment returns from the global equity markets. 

The Royal Skandia Protected Portfolio Investment Global Vista Life fun (PPI Global Vista) will offer exposure to global markets in a protected environment through equally weighted positions in AXA Framlington Emerging Markets Acc fund, Henderson European Opportunities A Acc fund, Invesco Perpetual Global Bond Inc fund, M&G Global Basics A Euro Acc fund and Schroder US Smaller Companies Inc fund.

It will be available to UK investors via Skandia’s offshore portfolio bonds and offers 100% capital protection plus 100% of the quarterly averaged growth at maturity. There is also an enhanced allocation of 104%.

The fund has a fixed five year term and will return the final redemption value to the bond at the end of the term offering the opportunity to reinvest the proceeds into an alternative investment vehicle.

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