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Alternative Market Briefing

Lyxor stress tests hedge funds with seven scenarios, finds them very resilient overall to adverse market conditions

Friday, March 14, 2014

Benedicte Gravrand, Opalesque Geneva:

IN their first edition of "Alternative Insight", a research newsletter, Lyxor Asset Management’s managed account platform reveals the results of stress tests done on hedge fund portfolios based on seven market scenarios for 2014, with both upside and downside risks.

The first scenario is: U.S. unemployment falls, rate hike expectations brought forward. In this scenario, long/short credit funds would fare best. CTAs would lose, event driven funds may suffer for exposure to a correction in U.S. equities, and with a contagion to euro area rates, CTA would still lose, and so would global macro funds and long/short credit funds.

The second scenario is: Deflation risks in the Euro area materialise. CTAs would gain on a fall in bond yield and EURUSD appreciation and global macro funds would lose the moste, due to their long European equities and their short EURUSD positions.

The third scenario is: Hard landing in China. Hedge funds would be moderately impacted, although global macro funds would be hurt by the fall in European stocks and commodities. CTAs would gain from the fall in T-bills.

The fourth scenario is: Emerging markets crisis redux. CTAs and L/S credit funds would be mostly negatively impacted by the rise in EM bond spreads. Overall hedge fund exposures t......................

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