Industry Updates

Investors balk at hedge funds’ losses in June and redemptions rise

Monday, July 11, 2011

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Opalesque Industry Update – While net inflows continued into May (according to TrimTabs Barclayhedge – see previous coverage here: Source), HFN is reporting that investors are showing their displeasure with negative performance by increasing the rate of redemptions in June. The firm reported on Monday that estimates for asset flows following the June -0.99% performance drop saw an increase to $6.4bn, outpacing allocations for the first time in a year.

At the mid-year mark, hedge funds are mostly flat, the HFN Hedge Fund Aggregate Index stands at +0.63%, while the S&P Total Return Index is +6.02% YTD.

While industry losses are primarily performance driven in June (which does nothing to ease the pain), the mid-year mark does typically see an increase in redemptions as large investors rebalance portfolios.

Beta neutral strategies were amongst the top performers for the month according to the HFN indices:

HFN Statistical Arbitrage +1.29%

HFN Options Strategies +0.96%

HFN Merger/Risk Arbitrage +0.46%

HFN also reported most equity strategies were slightly down in June (-0.54%). Equity market neutral funds managed to be up slightly (+0.19%) and Opalesque has learned of a few that notched stronger performance than their peers, such as The Midway Market Neutral Fund that let investors know it was +1.75% in June (estimated) and +22.09% YTD.

Commodities, which have, according to BarclayHedge/TrimTabs seen the bulk of asset inflows in recent months have also slid into negative territory in June with the HFN CTA/Managed Futures Index at -2.71% for the month and -2.96% YTD.

After a year of investors showing increasing confidence in both the markets and the vehicles, the first month where redemptions outpace allocations could mean that July 2011 performance returns will mark a turning point for the industry. It may be the moment where investors decide whether or not hedge fund managers are worthy of the portfolio exposure (and the fees) they have been clamoring for.

Kirsten Bischoff

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