Industry Updates

Lyster Watson Indices show positive performance across most strategies, especially high yield and distressed corporate credit

Thursday, February 17, 2011

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Opalesque Industry Update - Early January performance estimates show most strategies produced positive returns, especially those exposed to high yield and distressed corporate credit markets. Convertible Bond Arbitrage also posted very strong results as low rates on high yield debt increased investor demand for hybrid securities. Long/Short Equity strategies had mixed results, with the political upheaval in Egypt made EM and Western European indices slightly negative, while US-focused, Asian, and Global managers remained positive.

Event Driven and Market Neutral equity funds were modestly positive as were Volatility Arbitrage managers. Macro managers posted small losses as volatility declined for the month despite the slight increase that coincided with events in Egypt.

Overall the environment appears to remain positive for hedge funds in the large majority of strategies that benefit from low interest rates and declining volatility. Very low nominal yields on high yield debt, and rising prices of non-energy commodities continue to pose the greatest risks to those strategies, and the greatest challenge to managers of macro and volatility arbitrage funds.

Hedge Fund Strategy Indices	Returns			Volatility	Sharpe Ratio
	MTD	YTD	1-Year	1-Year	5-Year
DIRECTIONAL
Lyster Watson Credit Fixed Income Index	1.92%	1.92%	14.20%	4.65%	0.86
Lyster Watson Directional Macro Index	-0.64%	-0.64%	6.58%	3.80%	1.15
Lyster Watson Long/Short Equity Developed Asia Index	0.04%	0.04%	12.63%	9.49%	0.4
Lyster Watson Long/Short Equity Emerging Market Index	-0.33%	-0.33%	16.58%	11.17%	0.68
Lyster Watson Long/Short Equity Global Index	0.81%	0.81%	12.35%	8.74%	0.45
Lyster Waston Long/ShortEquity North America Index	0.89%	0.89%	16.13%	9.97%	0.44
Lyster Watson Long/Short Equity Western Europe Index	-0.22%	-0.22%	8.01%	6.99%	0.4

EVENT DRIVEN
Lyster Watson Distressed Investment Index	1.61%	1.61%	18.22%	6.93%	0.57
Lyster Watson Event Equity Index	0.45%	0.45%	14.04%	7.22%	0.53%

RELATIVE VALUE
Lyster Watson Convertible Arbitrage Index	1.63%	1.63%	14.80%	5.70%	0.51%
Lyster Watson Market Neutral Equity Index	0.57%	0.57%	3.08%	1.82%	0.55%
Lyster Watson Volatility Arbitrage Index	0.62%	0.62%	9.36%	4.29%	1.93%