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From Kirsten Bischoff, Opalesque New York:

Hedge funds, which underperformed equity indices in July, once again flexed their strength as capital protectors in August, while global equity markets declined (Dow Jones Global Index fell -3.62%). While hedge funds have not matched the strong performance of 2009, the reminder of their ability to maneuver through volatile markets was important for many managers who were facing the next large deadline for funds (quarterly +30 days notice).

Most hedge fund indices registered flat to slightly negative returns for the month while global macro surged +2.57% and managed futures gained 4.96% (according to Dow Jones Credit Suisse Indices).

Research from Bank of America Merrill Lynch showed that hedge funds have largely moved to more defensive positions as the year has progressed. The firm estimated that at the end of 2Q2010 cash holdings rose to 7.6% and leverage declined from 170% in 1Q2010 to 150% in 2Q2010 (a significant decline from the 2007 levels of 200%).

"Managers remain cautiously positioned and expect volatility to continue.  While many feel that the market could rally sharply to the upside on positive news, most remain unwilling to assume greater levels of risk in the current environment until they see stabilization." Said Lee Hennessee, Managing Principal of the Hennessee Group in a recent statement regarding hedge fund performance.......................

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