October Hedge Fund Capital Flows And Performance

The hedge fund industry, which for the most part is still markedly below its average high water mark, tracked the market closely in October, returning -0.36% for the month. More details on hedge fund performance from Hedgefund.net:

1) Hedge fund performance was slightly negative in October halting the industry’s seven month positive performance streak.

• The HFN Hedge Fund Aggregate Index was -0.36% in October and +16.25% YTD.
• The industry remains on pace to return nearly 20% in 2009 which would be the best since 2003 and second best in 10 years.

2) Investor flows remained positive in October for the 6th consecutive month. Total assets increased 0.74% to $1.967 trillion.

• Investors allocated $14.2 billion to hedge funds in October, an increased rate of core industry growth from September.
• During the 6 months of consecutive investor inflows, $91.7 billion has been allocated to hedge funds.
• Total hedge fund assets have increased 1.8% in 2009, slowed by large Q1 2009 redemptions, and are off 33% from their peak in Q2 2008.

And as investors brush off the events from 2008, and start piling in droves in the sector that caused so much pain to a lot of momo groupthink "specialists," here are the most active sectors in October:

Notable investor inflows by Market:

1. Equity related strategies: Investor allocations increased asset by 1.56% in October.
2. Commodity focused funds: Investor allocations increased assets by 1.02% in October.
3. Fixed Income Strategies: Investor allocations increased assets by 0.87% in October.

 
Notable investor inflows by Primary Strategy:

1. Merger Arbitrage: Investor allocations increased assets 2.80% in October.
2. Global Macro: Investor allocations increased assets 2.66% in October.
3. Statistical Arbitrage: Investor allocations increased assets 2.60% in October.
4. Market Neutral Equity: Investor allocations increased assets 2.04% in October.
5. Fixed Income Arbitrage: Investor allocations increased assets 1.86% in October.

Some details by specific strategy:

Regional/Country Specific Exposure:
Unlike developed market exposure, most emerging market hedge fund performance was again positive in October. The HFN Emerging Markets Index was +1.96% in October and +38.86% in 2009. Funds investing in Russia led the emerging market surge in October followed by China and Brazil. India and MENA focused funds lagged in October. Australia produced the only developed market positive hedge fund performance in October. The HFN Australia Index was +1.53% in October and +28.03% YTD.
 
Fixed Income (FI) Strategies
The average performance from fixed income focused strategies was +1.84% in October. Performance was led by mortgage bond related strategies while sovereign bond funds lagged, yet were still positive. The HFN Mortgages Index was +5.45% in October and +50.40% YTD. Corporate bond focused strategies were +1.80% during the month.
 
Equity (EQ) Strategies
The average performance from equity focused strategies was -0.47% in October. The HFN Long/Short Equity Index was -0.99% in October and +18.13% in 2009, outperforming the S&P 500 TR Index by more than 100bps. The best EQ market returns in October were from funds focusing on emerging markets and to a lesser extent, the energy sector. The HFN Market Neutral Equity Index was near flat, +0.04% during the month.
 
Commodity and Foreign Exchange (FX) Related Strategies
The CTA/Managed Futures Index again lagged the broad hedge fund industry in October. The Index was -1.61% during the month and +0.20% in 2009. FX related strategies, which have been the main drag on group in 2009, returned an average of -0.06% in October. Funds investing in Financial Futures (equity index) had the most difficult month.

Comments

[Anonymous]

"Funds investing in Russia led the emerging market surge in October followed by China and Brazil."

That seems strange. An economy with -10% growth and a government so corrupt that IKEA pulled out of the country.
What gives?

[Handle with care]

2 and 20 to closely track the market.

Nah, these guys aren't overpaid considering the enormous value they produce for investors and the economy

[Anonymous]

I'm invested in a hedge fund that outperformed EVERY U.S. equity mutual fund in 2008, and has roughly doubled the performance of the S&P 500 in 2009 (after fees). Who wouldn't be happy to pay 2 and 20 for that?

Besides, most hedge funds don't closely track the market; long-short has an r-squared of roughly 0.50, for example. You can be diversified, or you can choose to not be diversified and whine about how overpaid the hedgies are while your Edward Jones adviser explains to you that you are down 30%, but your strategy is working great. Your pick.

[Anonymous]

but I can piss farther than you.