Opalesque Industry Update - Hedge funds as measured by the Greenwich Global Hedge
Fund Index (“GGHFI”) fell by a fraction of the losses experienced by global markets in May. The
GGHFI shed 2.25% compared to global equity returns in the S&P 500 Total Return -7.99%, MSCI
World Equity -9.91%, and FTSE 100 -6.57% equity indices. 28% of constituent funds in the
GGHFI ended the month with gains.|
“While the majority of hedge fund strategies declined in May, the magnitude of the loss is substantially less than that of global equity returns,” notes Clint Binkley, Senior Vice President.
“Historically, the bulk of hedge fund alpha has been generated in bear market moves. Investors have come to expect that hedge funds will emphasize capital preservation over outsized returns. The results that we see in May confirm this expectation and demonstrate the value proposition for investing in this asset class.”
Market Neutral funds declined marginally in May, losing 1.04% on average as Event-Driven funds slightly outperformed Arbitrage strategies. The Event-Driven sector fell by 0.94%, as Distressed and Special Situations managers declined by 65 and 53 bps, respectively. Merger Arbitrage funds also experienced a tough month, losing 1.73%. Arbitrage strategies shed 1.61% as managers posted mixed results. Convertible Arbitrage funds saw their winning streak come to an end as funds dropped 2.90% on average. Fixed Income Arbitrage funds also lost 1.60%. Although a small portion of the overall index, Other Arbitrage strategies gained 1.29%. Equity Market Neutral funds were the best performing group of Market Neutral managers in February, only declining by 58 bps.
Directional Trading funds turned in excellent results in May, posting the smallest loss of all hedge fund strategy groups. Nearly 60% of Macro managers posted positive results, gaining 0.70% on average. Short positions in the Euro and profitable fixed income positions helped propel these funds in May. Managed Futures funds lost a respectable 1.22% as commodities declined with equity markets during the month. Discretionary traders performed slightly better than systematic models.
Long/Short Equity managers were the hardest hit among hedge funds in May as the Greenwich Long/Short Hedge Fund Index lost 4.31% during the month. Most funds had begun to reduce net exposures as equity markets fell near the end of April, which mitigated losses to an extent. Value investors fared slightly better than Growth funds, with each index losing 4.07% and 5.44%, respectively. Opportunistic managers lost 3.72% while Short-Biased funds capitalized on the drop in equities, gaining 2.47%. Long/Short Equity funds on average still maintain a small gain on year-to-date basis.
The Greenwich Long/Short Credit Index was one of the most successful smaller strategy groups in May, gaining 0.42%. Multi-Strategy funds paced the losses in the GGFHI, as the Greenwich Multi-Strategy Index fell by 2.31%.
On a regional level, hedge funds investing exclusively in developed markets performed markedly better than emerging market funds in May. The Greenwich Developed Market Composite Index dropped by 1.79% as compared to a loss of 6.12% for the Emerging Market Composite Index.
In developed markets, funds investing in Asia suffered the most, falling 3.11%, followed by European, North American, and Globally-focused funds, which lost 1.88%, 1.76%, and 1.62%, respectively.
Emerging market hedge funds fell in every region, but European managers posted the most
disappointing results, losing 10% on average as the European sovereign debt crisis continued to
take its toll on debt and equity markets. Global emerging market funds were the best performers,
falling by 4.13%, followed by Asian and Latin American funds, losing 5.25% and 5.68%,
respectively. Corporate website:Source