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Alternative Market Briefing

Hedge funds surpass previous high water marks, most important marketing message for the future - patience is a virtue

Tuesday, October 26, 2010

From Kirsten Bischoff, Opalesque New York:

Many of the investors who exhibited patience in the two years since hedge fund investments declined by nearly 19.5% in the second half of 2008 (according to Dow Jones Credit Suisse Hedge Fund Index) have finally been rewarded. During 3Q2010 all hedge fund managers in the DJCSHFI rose above previous high water marks, and fully recouped the losses of the global financial crisis.

In fact, September index reporting shows that the hedge fund industry as a whole is now 1.18% above their previous performance highs. Meanwhile, the Dow Jones Global Index, which saw a total drawdown of 52.7% during the same period in 2008, has only halfway recovered and is still down 25.8% off its previous peak.

An important message for future market shocks As hedge funds see their first sign of meaningful inflows (DJCSHFI approximates $13.8bn flowed into hedge funds during Q32010), and many expect a new phase in asset-raising to begin, there is one message that managers may be well served by stressing to their investors. That is to understand that hedge funds continue to prove that they can generate alpha on the upside and perhaps most importantly protect capital on the downside.

"The ability of hedge fund managers to employ both long and short positions across multiple asset classes has historically enabled hedge fund to deliver positive returns while providing a level of capital preservation in bear markets. In add......................

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