FoHF show lowest quarterly return in 1Q 2008 for five years

Date: Tuesday, June 10, 2008
Author: Hedge Funds Review

Pooled fund of hedge funds (FoHF) failed to achieve positive returns during the first quarter of 2008, according to statistics from BNY Mellon. It is the third consecutive quarter that pooled FoHF failed to achieve a quarterly positive return.

Over the period the median return for FoHF was -4.0, according to BNY Mellon Asset Servicing. This is the lowest return for FoHF since 2003 when the service started to measure pooled FoHF performance.

Pooled FoHF were outperformed by Property (-3.5%), UK bonds (-1.1%) and cash (1.3%). Despite a relatively weak performance during the first quarter of 2008, pooled FoHF managers still outperformed other key investment sectors including UK and overseas equity pooled funds, which returned -9.7% and -9.5% respectively. FoHF managers outperformed UK and overseas equity pooled funds.

Stronger results in earlier periods meant FoHF did make some small gains over a one year period with a median return of 1.7%.

Pooled fund of hedge fund managers outperformed key sectors over this one year period: UK and overseas equity funds which returned -8.8% and -1.9% respectively. Over longer periods pooled FoHF results were even stronger

Over three years to 31 March 2008, pooled FoHF were outperformed by both UK (8.8% a year) and overseas equity (10.6% a year) pooled funds. The volatility of returns over this period was significantly lower for FoHF managers.

The standard deviation for pooled FoHF was 5.3% a year compared with 10.1% a year and 10.9% a year for UK and overseas equity funds. Over this period pooled FoHF managers outperformed of 4.1% against UK bond pooled fund managers, with broadly similar levels of risk; the median standard deviation of these funds was 4.6% a year.

“Along with one of the worst starts ever to a year for the equity markets, pooled funds of hedge funds also suffered from negative returns in January and March, producing the lowest quarterly return we have seen,” said Alan Wilcock, performance and risk analytics manager at BNY Mellon Asset Servicing.

BNY Mellon Asset Servicing’s FoHF universe covers 19 separate funds with over £4.9 billion in assets. Each quarter BNY Mellon Asset Servicing publishes results from its pooled FoHF universe which consists of multi-strategy funds of hedge funds.

At March 31, 2008 the average FoHF held 48.4% of its assets in directional strategies, 13.1% in event driven strategies, 17.2% in non directional strategies and 21.4% in other (unspecified) strategies and cash.