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Alternative Market Briefing

Hedge funds slightly down last week as equity markets roll up

Tuesday, April 19, 2016

Komfie Manalo, Opalesque Asia:

Hedge funds were slightly down as of end April 12 despite positive returns in equity markets, Lyxor Asset Management reported. The Lyxor Hedge Fund Index fell -0.2% during the period (-2.7% YTD).

On the positive side, the rally in oil prices, which supported U.S. high-yield credit, was beneficial to fixed income arbitrage and long/short credit managers (+0.4%). They outperformed other strategies. Long/short equity managers underperformed (-0.5%) despite a rebound in equity markets. Managers suffered from their allocation to energy and materials sectors as the correlation between oil and equities continues unabated. Returns were mixed across long/short quity substrategies, with long bias funds up 0.1%. CTAs dragged down the overall performance, hurt by short positioning on energy in particular.

Philippe Ferreira, director and senior cross-asset strategist at Lyxor AM, said, "The recent deal break between Pfizer and Allergan has led to much speculation about the risks faced by merger arbitrage funds. With the October 2014 Shire/ AbbVie deal break in investors’ mind, which led to sizeable losses across the board, such developments have revived fears on the outlook for the strategy."

However, Ferreira added that there are several elements worth highlighting that, he believes, will lead to a different outcome this time. Back in 2014, merger arbitrage funds had elevated exposures to sever......................

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