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Hedge fund performance was led by Equity Hedge and fixed income-based Relative Value Arbitrage strategies in August, as the HFRI Fund Weighted Composite Index (FWC) advanced +0.25 percent for the month, according to data released by HFR.

The HFRI Multi-Manager/Pod Shop Index, which HFR is first publishing today, advanced +1.6 percent in August, with gains driven by a powerful combination of equity and fixed income trading through the historic early August volatility spike.

The HFRI Multi-Manager/Pod Shop Index is comprised of funds of various strategy types that utilize a multi-manager/pod structure, whereby fund capital is allocated to multiple independent investment teams. The Pods are autonomous but generally operate within certain portfolio management or risk guidelines, and capital is allocated to or from these Pods in a discretionary manner under the supervision of a CIO. The HFRI Multi-Manager/Pod Shop Index is the first index focused exclusively on institutional multi-manager pod shop hedge funds. HFR estimates that approximately $425 billion is currently managed in multi-manager funds.

Hedge fund performance dispersion contracted in August, as the top decile of the HFRI FWC constituents advanced by an average of +5.5 percent, while the bottom decile fell by an average of -6.2 percent, representing a top/bottom dispersion of 11.7 percent for the month. By comparison, the top/bottom performance dispersion in July was 14.6 percent. In the trailing 12 months ending August 2024, the top decile of FWC constituents gained +36.8 percent, while the bottom decile declined -10.4 percent, representing a top/bottom dispersion of 47.2 percent. Approximately sixty percent of hedge funds produced positive performance in August.

Equity Hedge (EH) funds, which invest long and short across specialized sub-strategies, led performance gains in August, driven by Healthcare and Technology sub-strategies. The HFRI Equity Hedge (Total) Index advanced an estimated +0.8 percent for the month to bring its YTD return to +9.0 percent, leading all strategy indices over the first eight months of the year. EH sub-strategy gains were led by the HFRI EH: Healthcare Index, which jumped an estimated +2.85 percent, the HFRI EH: Quantitative Directional Index, which advanced +2.55 percent, and the HFRI EH: Technology Index, which added +2.2 percent. The HFRI EH: Healthcare Index leads all sub-strategies YTD through August with a return of +16.45 percent through the first eight months of the year.

Fixed income-based, interest rate-sensitive strategies also gained in August, navigating the inflection point shift from rising inflation concerns to falling interest rates/moderating inflation, as well as accelerating geopolitical uncertainty. The HFRI Relative Value (Total) Index advanced an estimated +0.4 percent in August, led by the HFRI RV: Convertible Arbitrage Index, which gained +1.1 percent, and the HFRI RV: Corporate Index, which added +0.7 percent for the month.

Event-Driven (ED) strategies, which often focus on out-of-favor, deep value equity exposures and speculation on M&A situations, posted mixed performance for August after leading strategy gains in July, as gains in Activist and Special Situations exposures were offset by declines in other ED sub-strategies. The HFRI Event-Driven (Total) Index posted a modest gain of +0.15 percent, led by the HFRI ED: Activist Index, which gained +1.2 percent, and the HFRI ED: Special Situations Index, which added +0.6 percent.

Macro strategies extended declines in August as equity volatility surged to begin the month and interest rates fell, driven by losses in quantitative, trend-following CTA strategies. The HFRI Macro (Total) Index fell -1.1 percent in August, the fourth consecutive monthly decline, with losses led by the HFRI Macro: Systematic Diversified Index, which fell -2.9 percent for the month. Partially offsetting these declines, the HFRI Macro: Active Trading Index surged +4.7 percent, leading all sub-strategy indices in August, while the HFRI Macro: Multi-Strategy Index added +0.5 percent for the month. Liquid Alternative UCITS strategies posted gains in August as the HFRX Market Directional Index advanced +1.3 percent, while the HFRX Global Hedge Fund Index added +0.4 percent.

Strategy gains were led by HFRX Relative Value Index, which gained +1.0 percent, and the HFRX Equity Hedge Index, which added +0.8 percent. The HFRI Diversity Index advanced an estimated +0.7 percent in August, while the HFRI Women Index added +0.3 percent.

"Hedge funds navigated the historic spike to financial market volatility to begin the month of August, with leadership from Equity Hedge, Relative Value and Multi-Manager Pod Shops as global equities posted steep declines to begin the month as investors positioned for global economic weakness, falling interest rates and continued geopolitical uncertainty," stated Kenneth J. Heinz, President of HFR. "Leading strategy areas were opportunistically positioned for the volatility, driven by a combination of technology stock weakness and unwind of the Japanese Yen carry trade, with these factors also driving mixed performance across a wide range of hedge fund sub-strategies. Multi-Manager Pod Shop hedge funds were among the leading areas of hedge fund performance, with these able to tactically adjust portfolio exposures through the volatility and weakness to drive gains for the month. With expectations of volatility and the potential for destabilizing dislocations remaining high through year-end, institutions which are interested in specialized, opportunistic access to these powerful trends are likely to allocate to managers which have demonstrated their strategy's superior performance and robustness in recent months."