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Alternative Market Briefing

Hedge fund industry returns show lowest beta level since 2004 – Credit Suisse/Tremont

Monday, April 26, 2010

From Kirsten Bischoff, Opalesque New York:

As the financial crisis unfolded and hedge funds suffered negative performance in 2008, much of the criticism pointed at the industry accused hedge fund managers of taking performance fees off the capture of market beta.

Research from the Credit Suisse/Tremont (CS/T) Hedge Fund Index team (Staying the Course: Q1 2010 Hedge Fund Update) that focuses on January 2000 to January 2010 figures shows that from 2004 to 2007 hedge fund returns were increasingly driven by beta. However, the research also shows that during the last two down market cycles, hedge fund managers proved their ability to turn to other strategies in order to capture performance, and currently, the industry is at the lowest levels of beta driven returns since 2004.

“This has led many managers to introduce a number of diverse strategies that aim to capitalize on distinctive market opportunities, which have allowed hedge funds to produce stable and positive returns irrespective of equity market movements through the first quarter,” says the report.

The CS/T research illustrates the importance of taking a longer-term view when evaluating the hedge fund industry’s performance. Capturing beta in times of market strength is beneficial to performance, as managers participate in up-markets, and then seek to add their own alpha to t......................

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