More than 500 new hedge funds were launched globally during the first seven months of 2013.

The cumulative assets under management by the global hedge fund industry have now risen to $1.9 trillion, according to financial data and research company Eurekahedge.

But hedge fund performance continues to be lackadaisical, with poor decision-making by managers resulting in a loss of $4.7 billion in August.

The Eurekahedge Index — a flagship equally weighted index of 2,788 constituent funds — posted a 0.4 per cent decline for the month and has only achieved growth of 3.1 per cent for the January-August period. In comparison, the MSCI World Index gained 10 per cent during the period.

This is likely to have been the primary factor behind the pullout of $1.6 billion from hedge funds during the month.

India-focused hedge funds, in particular, need to be given a wide berth. These funds posted a sharp 9.2 per cent loss for August. Year-to-date, they have witnessed an erosion of 17.4 per cent, the data shows.

But there were bright spots in global hedge fund performance, with Asia hedge funds outperforming underlying markets by 10 per cent in the first eight months of the year, posting gains of 18.2 per cent.

Eurekahedge data show that investing in distressed debt has been the best performing strategy during the year, registering gains of 9.8 per cent as of end-August.

Meanwhile, long/short equity hedge funds (funds which use short as well as long positions to make money) also appear to be capturing investors’ attention, with assets invested in these funds crossing $600 billion for the first time since 2008.

Overall, hedge fund assets declined marginally in August amid increased risk aversion in global markets. This was driven by a host of factors, including the prospects of the US getting embroiled in another war in West Asia and weakening economic situation in emerging markets.

In addition, concerns about quantitative easing by the US Federal Reserve also impacted the market sentiment. But improved economic data from the Euro Zone and positive Chinese PMI (purchasing managers index) numbers mitigated the negative news to some extent.

>arvind.jayaram@thehindu.co.in

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