Year 2013 was a tough one for India-focused hedge funds -- their cumulative corpus contracted 4.8 per cent during the period. They witnessed negative returns in seven out of the 12 months in 2013, with a 9.2 per cent loss in August leaving a bitter taste.

Silver lining

Fund managers would be hard-pressed to explain the losses given that even the BSE benchmark Sensex delivered an 8.1 per cent return to investors in the calendar year.

However, hedge funds with a managed futures hedging strategy were the bright spot; these funds achieved a 14.6 per cent return for the 12-month period, according to independent financial data and research company Eurekahedge.

“Some funds utilise proprietary ‘quant’ models and benefited from their contrarian investment strategies as Indian equity markets saw increased volatility in the latter half of the year,” said Eurekahedge analyst Mohammad Hassan. Fixed income hedge funds suffered a 15.8 per cent loss in 2013, while funds with a long-short equity strategy also declined by 5.1 per cent.

“A number of long/short equity fund managers invest with a ‘long bias’ and therefore, were impacted adversely by the market downturn in Indian equities during the May-August period, when the S&P BSE Sensex declined 4.5 per cent,” Hassan said.

Globally, too, hedge fund performance was sub-par, delivering just 8 per cent returns to investors even as the MSCI World Index rose by 24.1 per cent.

But investor interest in hedge funds continues unabated, with the total assets of the global industry rising to $2.01 trillion at the end of the year, the highest level on record since June 2008, when their assets under management peaked at $1.95 trillion.