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Hedge Funds Had 6th Monthly Returns in August, Eurekahedge Says

Date: Wednesday, September 9, 2009
Author: Tomoko Yamazaki, Bloomberg

Hedge funds returned 1.1 percent in August, the sixth straight monthly gain, as managers investing in Europe and distressed debt outperformed, Eurekahedge Pte said.

The Eurekahedge Hedge Fund Index, tracking more than 2,000 funds, gained 13 percent this year, according to the Singapore- based data provider’s preliminary report based on 30 percent of the funds that reported August performances. Net inflows to the industry totaled $4.5 billion last month with over 50 percent of the reporting funds attracting capital, the report showed.

Hedge funds are benefiting as stock markets rebound on signs economies are recovering from the first global recession since World War II, and managers investing in distressed assets are finding opportunities in the wake of the financial crisis. The MSCI World Index of 23 developed nations jumped 3.9 percent in August, bringing its year-to-date advance to 18 percent.

“Hedge funds have benefited greatly from the global stock- market recovery,” said Masaharu Ito, a senior analyst at Daiwa Institute of Research Ltd.’s capital market research department in Tokyo. “Given how many of the funds still have some sort of exposure to the equity market, their performance going forward will largely depend on the direction of stock markets globally.”

More than 300 funds have started while 400 fund-closures were confirmed this year, Eurekahedge said.

Asia Underperforms

Six of Eurekahedge’s seven regional indexes rose last month. The measure tracking Asia-focused hedge funds declined.

The gauge tracking European managers advanced 2.6 percent, making it the best performer in August, as funds benefited from gains in regional equities, Eurekahedge said. Eurekahedge’s North American Hedge Fund Index climbed 1.8 percent as the Standard & Poor’s 500 Index rose for a sixth-straight month.

Managers in Asia excluding Japan underperformed, with the Eurekahedge Asian Hedge Fund Index losing 0.4 percent, as stocks in China, Hong Kong and Taiwan fell. China’s Shanghai Composite Index tumbled 22 percent in August, its biggest slide since October 2008, pushing the benchmark into a so-called bear market.

The measure tracking Japan’s hedge funds added 0.7 percent as the benchmark Nikkei 225 Stock Average rounded off a six-month, 39 percent advance.

All nine Eurekahedge measures tracking different hedge-fund strategies rose. An index of managers investing in distressed debt jumped 6.2 percent, making it the best performer, largely driven by a few emerging-market-focused funds, Eurekahedge said.

Distressed Securities

Distressed securities are mostly loans and low-rated, high- yield bonds of companies that have trouble meeting interest and principal payments. Investors can profit if prices rebound or the securities are swapped for equity in a restructuring. Distressed loans usually trade below 90 cents on the dollar and bonds below 70 cents.

Eurekahedge’s global index last year slid 11 percent, the most since the firm began tracking data in 2000. In July, hedge- fund assets increased by $10.6 billion, bringing total assets under management to $1.35 trillion, Eurekahedge said last month.

Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether asset prices will rise or fall.

Eurekahedge plans to release a full report later this month.

To contact the reporters on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net