Despite gains, their performance is inferior to returns from equity markets

India-focused hedge funds snapped their four-month losing streak in September this year, gaining 7.1 per cent. This was better than returns from hedge funds broadly focused on Asia and even outperformed Japanese hedge funds.

But it was not sufficient to cover up slippages in previous months and India-focused funds were down 11.5 per cent in the January-September period this year.

These funds are clearly not the best choice if you want to put your money in a hedge fund. Indian hedge funds have posted losses of 3.6 per cent for the July-September quarter. In contrast, Asia-focused hedge funds have delivered an average return of 9.9 per cent for January-September 2013.

Back to earnings

Globally, hedge funds were back to earning mode in September, thanks to rallies in underlying markets. North American hedge funds were up 1.7 per cent during the month after losing 0.4 per cent in August, while hedge funds targeted at emerging markets bounced back by 2.1 per cent after shedding 0.7 per cent in the previous month.

European hedge funds, too, posted a 2.5 per cent return for September, compared with a 0.2 per cent decline in August.

But despite the gains, hedge fund performance was inferior to the returns from equity markets. The Eurekahedge Hedge Fund Index — which tracks the performance of 2,404 funds — was up 1.2 per cent during September, whereas the MSCI World Index gained 3.9 per cent.

Sustained fund inflows

Positive investor sentiment in hedge funds drove up the total assets under management of the sector to $1.9 trillion in September, just 2 per cent shy of their historical peak. This was the eighth straight month of net inflows into global hedge funds, with $90 billion mopped up since January, according to financial data from research firm Eurekahedge.

Among the highlights of the month was that assets in long/short equity hedge funds surpassed the $600-billion mark for the first time since 2008 after attracting fresh inflows of $1.3 billion. However, they remained below the peak of $756 billion reached in October 2007.

Multi-strategy funds witnessed healthy allocation activity in September as well, with net positive inflows of $0.9 billion. These funds delivered a 6 per cent return for the 12 months to September.

Fixed income funds, too, saw net inflows of $0.3 billion during the month under review, taking their total inflows in 2013 to $31.1 billion as of September. The total assets under management by fixed income hedge funds now stand at a record $142.5 billion. They gained 7.1 per cent between September 2012 and September 2013.

On the other hand, commodity trading manager (CTA)/managed futures funds — which tracks funds that use futures contracts as part of their overall investment strategy — witnessed net asset outflows for the fourth consecutive month. Eurekahedge expects further outflows from the strategy, as these funds have not delivered the requisite performance in 2012 and 2013, even though they attracted significant capital in 2011.

arvind.jayaram@thehindu.co.in

(This article was published on October 18, 2013)
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