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Opalesque Industry Update – March 2010 was the best month in the last ten for hedge funds and pushed the HFN Hedge Fund Aggregate Index to a new peak, surpassing the prior peak level set in October 2007.

Below are early estimates for March 2010 hedge fund asset flows and performance. A full report will be available later in the month.

Highlights:

Performance was strong in March and net investor flows were again positive, but below the high rate in February. Positive returns were driven primarily by rising equity markets and supported by strong moves in energy and other major commodity prices. Emerging market funds appear to have performed best, led by managers investing in Russia and the Middle East/North Africa region.

• The HFN Hedge Fund Aggregate Index was +3.04% in March 2010 and +3.03% YTD compared to +6.03% in March and +5.39% YTD for the S&P 500 TR Index.
• Total estimated hedge fund assets increased 3.15% to an estimated $2.257 trillion, performance was the main driver of total asset increased.
• Investors allocated a net $610 million to hedge funds in March and performance accounted for an additional $68.25 billion resulting in a total assets increase of $68.86 billion during the month.
• Investor flows were positive in March for the 10th month in the last 11. There was a slight outflow in December 2009 due to year-end redemption trends.
• The Core Growth Rate (% increase in assets due solely to investor flows) was +0.03% in March, a decrease from February.
• Hedge fund assets are an estimated $681 billion below the peak set in Q2 2008.

Assets:

• Event driven strategies had their 11th straight month of net inflows. The strategy has taken in more assets in the last year than any other.
• Equity and corporate bond related strategies posted above average net inflows. Government bond, broad fixed income and commodity related strategies had net investor outflows.
• CTA managers had above average net inflows, ending three straight months of net investor outflows. Large, multi-sector (not commodity focused) CTAs were responsible for the majority of net inflows.

Regional/Country Specific Exposure
Emerging market fund returns were broadly higher in March. Funds investing in Russia and the Middle East/North Africa region performed best, likely influenced by the rise in oil commodity prices.

HFN Russia Index: +9.98% in March, 12.00% in 2010 HFN MENA Index: +8.92% in March, +10.50% in 2010 HFN China Index: +1.72% in March, -1.95% in 2010 HFN India Index: +4.34% in March, 1.50% in 2010 HFN Brazil Index: +1.40% in March, -0.04% in 2010 HFN Emerging Markets Index: +6.35% in March, +5.98% in 2010

Fixed Income (FI) Strategies
The average performance from fixed income focused strategies was +2.15% in March. Corporate bond and specifically high yield and distressed strategies outperformed both mortgage and government bond related strategies, though all were higher on average for the month.

HFN Mortgages Index: +1.40% in March, +4.80% in 2010
HFN Distressed Index: +4.36% in March, +7.23% in 2010
HFN Fixed Income Arbitrage Index: +0.95% in March, +3.36% in 2010
Corporate bond strategies: +3.57% in March
Government bond strategies: +0.52% in March

Equity (EQ) Strategies
The average performance from equity focused strategies was +3.57% in March. Emerging market funds focusing on EQ related strategies produced the strongest returns, but equity fund returns were strong in most sectors.

HFN Long/Short Equity Index: +3.85% in March, 3.57% in 2010
HFN Market Neutral EQ Index: +0.69% in March, 1.52% in 2010
HFN Short Bias Index: -4.93% in March, -5.29% in 2010
HFN Energy Sector Index: +2.44% in March, +4.24% in 2010
HFN Healthcare Sector Index: +5.55% in March, +4.76% in 2010
HFN Technology Sector Index: +3.03% in March, +1.69% in 2010

Commodity and Foreign Exchange (FX) Related Strategies
After a slow start to 2010, CTAs had above average returns in February and were up again in March to turn positive for the year. Funds investing in currencies and oil related commodities performed best in the group, while those investing in the agricultural sector were down slightly on average.

Agriculture sector focused funds: -0.30% in March, -0.22% in 2010
Foreign Exchange focused funds: +1.22% in March, +1.48% in 2010
Oil/energy related commodities: +2.37% in March, +0.19% in 2010
Financial Futures focused funds: +0.94% in March, -3.02% in 2010
HFN CTA/Managed Futures Index: +2.54% in March, +0.10% in 2010

HedgeFund.net

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