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HFRI Fund Weighted Composite Index fell -2.3% in August (-1.22% YTD)

Friday, September 09, 2011
Opalesque Industry Update - Hedge funds posted their largest monthly declines since May 2010 in August, with the HFRI Fund Weighted Composite Index declining by -2.3 percent, according to data released today by HFR. With the August losses, year-to-date performance for the broad based composite index now stands at -1.2 percent. For the month, 29 percent of all constituents reported positive performance, while 45 percent of all constituents are positive year-to-date (YTD) through August.

Hedge funds, as well as broader financial markets, were negatively impacted by the combination of continued and accelerating concerns relating to the European sovereign debt crisis, the debate surrounding the US debt ceiling, the downgrade of US Treasury securities, and evidence of general economic and employment weakness in the US.

The weakest areas of hedge fund strategy performance in August included Equity Hedge and Event Driven strategies, which declined by -4.1 and -3.7 percent, respectively. Both strategies posted their 4th consecutive month of negative returns, the longest drawdown since the Financial Crisis of 2008, and were significantly impacted by declines across major global equity markets ranging from -4 to -15 percent. Funds maintaining a dedicated Short Bias posted gains of +6.9 percent in August, the 4th consecutive month of gains for such funds.

Macro strategies posted negatively correlated gains for the month, with the HFRI Macro (Total) Index posting a narrow gain of +0.1 percent, while the HFRI Macro: Systematic Diversified Index gained +0.9 percent in August. Macro funds were impacted by a wide range of volatile influences, with both long and short positioning having significant contributions to performance. Systematic Macro funds generally posted gains in gold and US fixed income, with mixed Macro performance across other commodities, currencies (notably Swiss Franc and Japanese Yen) and equities.

Relative Value Arbitrage funds posted a decline of -1.2 percent in August, only the 3rd monthly decline for this strategy since December 2008. The HFRI Relative Value Arbitrage Index is the only strategy index with positive YTD performance, posting a gain of +1.9 percent through August. Fund of Hedge Funds posted declines of -2.0 percent for the month, while Emerging Markets hedge funds declined of -4.7 percent. Performance of underlying HFRI constituent funds is available via access to the HFR Database.

"The volatile environment for hedge funds in August exhibited certain similarities to the Financial Crisis of 2008, but exposed key differences, with significant implications for both investors and hedge fund managers," stated Kenneth J. Heinz, President of HFR Inc. "Similar to 2008, Equity and Credit sensitive strategies were the weakest area of performance while Macro Systematic funds were tactically positioned for the volatile environment. In contrast, however, financial markets maintained liquidity in August, with risk dynamics concentrated in developed market sovereign credit and employment, as opposed to 2008, when the overhang of excessive levels of private consumer and mortgage debt were the primary catalysts."

(Press release)

Full performance table: Source
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