Hedge Funds Still Struggling

Date: Friday, January 16, 2009
Author: James Armstrong, Hedge Fund Correspondent, Markets Media Online

Though hedge funds performed better in December than they did in previous months, the latest data from industry trackers Credit Suisse/Tremont and HedgeFund.net suggests funds are still facing serious challenges.

The Credit Suisse/Tremont Hedge Fund Index was down only 0.03 percent in December, as opposed to its November decline of 4.15 percent. Final numbers show the index down 19.07 percent for the year. The HFN Hedge Fund Aggregate Average was up 1.11 percent in December, but that was not enough to save it from its worst year on record, with an overall decline of 15.27 percent in 2008.

"It was a much better month than the previous couple of months," said Philippe Schenk, a director at Credit Suisse/Tremont. "One of the reasons is the markets have calmed down a bit. Volatility has come down dramatically."

Successful strategies in 2008 included managed futures funds and funds that invest in mortgages. The HFN Mortgages Average was up 3.54 percent in December and 23.9 percent for the year. Managed futures funds, including Commodity Trading Advisors (CTAs), were up 2.05 percent in December, according to HFN, and about 12.2 percent for the year. Credit Suisse/Tremont had managed futures funds up 2.37 percent in December and about 18.3 percent for the year.

Last year was not a good time for hedge funds investing in emerging markets, however. The HFN Emerging Markets Average was down 1.33 percent in December and about 39.4 percent for the year. While Credit Suisse/Tremont showed a positive performance of 0.22 percent for emerging markets funds, its emerging market index is still down about 30.4 percent for the year.

Schenk said Asia performed the best in December among emerging markets, with Latin American funds also up slightly. Emerging Europe was down about 3 percent, however.

"Russia is a big factor in the emerging Europe portion," Schenk said. "Therefore, it certainly has impacted the performance."

Early estimates by HedgeFund.net show hedge fund assets overall fell an additional 10.6 percent in December to around $1.84 trillion. At their peak in the second quarter of last year, funds may have had as much as $2.97 trillion in assets. HFN said the decline in assets last month was mainly due to redemptions and fund liquidations, which reached a record $221 billion in December.