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Event driven strategies posted the largest gain since April 2003 as the HFRX Event Driven Index posted a strong gain of +3.38%, with contributions concentrated in Activist and Equity Special Situation strategies. The HFRX ED: Special Situations Index gained +4.22%, the strongest monthly return since 2005, with robust activity across the Energy, Basic Materials, Media, Consumer and Communication sectors, while activist positioning in Herbalife dominated trading headlines. The HFRX Merger Arbitrage Index gained +0.27%, with active positioning in and contributions from Dell, Allergan and UPS/TNT, while new transactions were announcements in Dish Network/Clearwire and Avis/Zipcar deals. Continued tightening in high yield credit also contributed to gains with the HFRX ED: Distressed Index gaining +0.81% for the period.

The HFRX Equity Hedge Index gained +2.64% for January, its strongest performance since December 2010, as equity markets across most geographies and sectors posted broad based gains. The HFRX Fundamental Value Index posted a gain of +3.08% with contributions from US and European large cap equities in the Financial, Consumer and Energy sectors. The HFRX Fundamental Growth Index gained +2.36%, with contributions from Emerging Markets, US small cap, Communications and Consumer sectors. HFRX Market Neutral Index gained +0.38% for the month, with contributions from Fundamental small cap and pair trading strategies.

The HFRX Relative Value Index gained +1.51% for the month, with gains across Convertible, Corporate credit and Multi-Strategy FI Arbitrage. The HFRX RV: Multi-Strategy Index gained +1.50%, with positive contributions from US and Asian credit exposures and effective interest rate hedging, which were only partially offset by declines in Commodity exposure. The HFRX RV: Convertible Arbitrage Index gained +0.97 % with strong contribution from US and Emerging Asia FI exposure, while the HFRX Fixed Income - Credit Index gained +1.39%. The HFRX MLP Index gained +8.03% for the month on improvement in underlying energy infrastructure strategies, as well as increased retail activity on expectations for improved dividends.

The HFRX Macro Index posted a modest gain of +0.10% for January, with positive contributions from Currency and Fixed Income Discretionary managers, which was partially offset by mixed performance of Systematic CTAs. Discretionary Macro posted gains in long Euro & short Yen currency positions, complemented by fixed income trading gains; HFRX Emerging Markets Index posted a gain of +0.41% Long-term trend following managers posted gains offset by shorter-term models, with the HFRX Macro: Systematic Diversified Index declining -0.08% for the month.

Global financial markets posted strong gains in January to start 2013, as the resolution of the US fiscal cliff negotiations, optimism over the European sovereign debt crisis and a dynamic M&A environment provided catalysts for strong equity market gains globally. Sector gains were led by Cyclicals, Energy and Semiconductors, overcoming the cap-weighted impact of the sharp decline in Apple. Regional gains were broad based across both developed and emerging markets, with European leadership from Switzerland, UK, Italy and Russia, while strong gains in Asia continued in China, Japan and Australia. Currency trading volumes soared on dramatic moves including strong gains in the Euro against both the US dollar and Swiss Franc, while the US dollar posted strong gains against both the British Pound Sterling and the Japanese Yen, the later in response to aggressive economic stimulus measures and inflation targeting by the Bank of Japan. US Treasury bond yields rose sharply across most maturities on the improved US outlook, with the US 10 year yield trading above the 2 percent yield; yields rose sharply across UK Gilts and German Bunds, while yields declined in Italy and Spain on improved outlook. Commodity gains were led by Platinum, Oil, Cotton & Corn, while M&A/Event Driven investing was dominated by activist investors and positioning in Herbalife equity.

Comments reference performance figures for January 31, 2013

Press release

www.hedgefundresearch.com/hfrx

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