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As of June 21, 2011 and with 3,255 hedge fund products reporting, the HFN Hedge Fund Aggregate Index was down -1.06% in May (+1.62% YTD) compared to the S&P 500 Total Return Index (S&P) which also fell -1.13% during the period (+7.82% YTD).

Weak performance was the biggest pull down last month, eating up the increase in net investor allocations. May’s negative results also ended the hedge funds’ 10-month winning streak up to April.

HFN Vice President Peter Laurelli commented that despite the aggregate equity market slide, “there were pockets of strong returns for hedge funds in the healthcare sector as well as positive performance, albeit slight, for small/micro cap related strategies. Mortgage funds continued to produce positive returns and along with healthcare funds are the only strategy/sector groups to have outperformed the S&P in 2011.”

More importantly Laurelli noted that many strategies that pushed performance to a positive levels in April, reversed their outputs last month, with the biggest losses reported in CTA/managed futures strategies along with energy and technology equity focused funds.

However, credit strategies showed resilience from May’s volatile market and outperformed other strategies, particularly mortgage funds. Some emerging markets interest rate markets and short European sovereign debt also provided positive results.

In Asia, Japan-focused funds have yet to recover from the devastations brought by the earthquake and tsunami in March as they recorded negative results for the third straight month. Japan-focused hedge funds fell an average 5% since March.

Monthly asset flow estimates

• Total estimated hedge fund assets at the end of May 2011 were $2.586tln, a decrease of 0.79%, or $20.5bnfrom April.

• Performance accounted for a decrease of $31.9 billion and investors accounted for a net inflow of $11.4bn.

• The core rate of growth (% asset change due to investor allocations/redemptions) was 0.44%, a decrease from April and only slightly above the prior twelve month average.

• Total hedge fund AUM is now 14% below the all-time high set in Q2 2008.

Regional performance
Regional performance also suffered a hit as emerging markets equities related returns took a dive with the biggest losses coming from Russia and India focused strategies. The HFN Emerging Markets Index is barely positive for the year at +0.12%, its lowest level through the first five months of a year since 2008 and second lowest since the Russian financial crisis of 1998.

Australia focused hedge funds recorded the highest losses among any developed markets as it declined -2.28% during May.

Laurelli added: “While money flows into hedge funds have continued at an above average pace, the influx of capital may be a vote of lack of confidence in direct investment in traditional markets. The vast majority of equity markets are in negative territory in June, the Greek debt crisis has European credit markets sitting at a point of flux and commodity prices are mixed with energy prices continuing their fall. All of which points to another difficult month for aggregate hedge fund returns, however it may be a second straight month when the industry outperforms broad equity markets.”

Eurekahedge Hedge Fund Index fell -1.24%
In its latest industry update, Eurekahege reported that Eurekahedge Hedge Fund Index fell -1.24% in May as industry assets lost $5bn during the period.

The report added that while investor allocations outpaced redemptions by $8bn, performance has wavered and has dragged the industry down.

A separate report also blames the poor U.S. economic data and the renewed fears that China is headed towards a slow down for the poor performance of the hedge fund industry last month.

A survey by Man Group has found that managed futures and global macro funds was hardest hit on concerns on the U.S. dollar and long commodity positions which weighed heavily on performance.
Komfie Manalo