Hedge fund recovery marred by redemptions

Eleven of the thirteen hedge fund strategies tracked by the Paris-based Edhec Risk Institute posted positive performance in October, although many remained in negative year-to-date territory triggering heavy redemptions.

Equity long/short was the strongest performing hedge fund strategy in October, returning 4.3%, Edhec data demonstrated.

This performance was largely generated by a rebound in equity markets with the S&P 500 index registering 10.93% returns, its best monthly performance in 20 years. Year-to-date equity long/short remained down 3.8%.

Emerging markets also generated strong returns, up 3.91%, although it remains down 6.9% year-to-date. Similarly Hedge Fund Research’s HFRX Total Emerging Markets Index gained 4.1% in October following a decline of 5.0 percent in September.

Event-driven, distressed securities and funds of hedge funds also had a good month, up 2.97%, 2.98% and 1.22% respectively.

The only strategies to fall were CTA global and short selling. Despite a sharp fall in the dollar (down 3.15%) and the commodities market being up 9.64%, CTA global strategies dropped 3% bringing year-to-date performance to a negative 3.7%. Short-selling strategies fell 7.36% reducing positive year-to-date returns to 4.7%.

Edhec-Risk’s hedge fund data complements that of the Eurekahedge Hedge Fund Index which rose 2.04% in October, its largest gain this year, on the back of renewed optimism in the market and resurgent risk appetite.

Despite the encouraging returns hedge funds posted in October, investor redemptions were heavy. Total assets in the industry fell by $4.5bn for the month Eurekahedge data revealed, driven primarily by the redemption pipeline built up since August and September.

Although the industry has made a significant recovery from the financial crisis over the last two years, these numbers indicate that investors remain edgy and will start to withdraw their capital based on movements in the underlying markets, Eurekahedge concluded.

According to eVestment Alliance, a provider of institutional investment data intelligence, “it is likely the case that new allocations are on hold [given market volatility] while redemptions are slightly higher than normal due to performance losses in prior months.”

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