However, over the same period of time, the broad HFRI Fund Weighted Composite Index achieved a return of 5.2%. This exceptional performance gap might be explained by the fact that due to lower entry barriers funds of hedge funds offer a higher retailization level than single hedge funds. It is no surprise therefore that the exodus within the Swiss FoHF industry was mainly related to private investors. This might also explain why in the month of May not even the return of the HFRI Index matched the performance of the MSCI World Index (+8.6%).

Net capital outflows since April 2008 surpassing investments in the growth phase
Since April 2008, net capital outflows of Swiss registered FoHF have summed up to USD 24 bn, representing a decrease in industry assets of 53%. As a result, asset losses suffered over the past 14 months even surpassed investments transacted in the last growth phase, between March 2006 and March 2008, amounting to USD 20 bn. Since year-end 2008, total net outflows amounted to an estimated USD 10 bn, whereof two thirds took place in January, which to a large extent reflected the announced liquidation of the former Reichmuth flagship fund „Matterhorn“.

Q2 2009 marked by a clear slowdown in the number of liquidations
Following this difficult phase, marked by liquidations and the aftermath of the Madoff fraud, a clear consolation becomes apparent in the Swiss FoHF industry. Since February 2009, assets of Swiss registered funds of hedge funds have managed to stabilize at a level of USD 15 bn. In the month of May FoHF assets even increased by 4.0% to USD 15.3 bn, whereby 70% of this improvement was performance-related.

Gains achieved in the first five months of 2009 have already been bearing fruit (hedgegate Swiss FoHF Index up 3.3%): According to our estimates, for the month of May the industry recorded the first – albeit small – net capital inflow of USD 168 mn since June 2008. At the same time, there was a clear slowdown in liquidations. While in the first quarter of 2009 ten fund suppliers executed or at least announced the liquidation of several of their Swiss registered FoHF products, the second quarter recorded only a few liquidation announcements. However, for the time being net capital increases will flow more slowly than previous net outflows.

Further information: School of Management and Law, Center for Alternative Investments & Risk Management, Tel. +41 58 934 70 14, www.zai.zhaw.ch