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Hedge Funds Post Biggest Gain in Four Months as Markets Rally

Date: Wednesday, August 11, 2010
Author: Tomoko Yamazaki and Warren Giles, Bloomberg

Hedge funds posted their biggest gain in four months in July as a rally in equity, commodity and bond markets lifted returns, according to Eurekahedge Pte.

The Eurekahedge Hedge Fund Index, which tracks more than 2,000 funds worldwide, rose 1.42 percent, the most since March, Singapore-based Eurekahedge said in an e-mailed report. The index has climbed 1.17 percent this year.

Hedge funds snapped two straight months of declines as they tracked global stock advances following better-than-expected earnings and the publication of bank stress test results in Europe. The hedge-fund industry trailed the MSCI World Index, which rose 8 percent last month, the largest increase in a year.

“We saw a recovery in appetite for risk assets last month and that contributed to the gains in the industry,” said Tan Maruyama, chief investment officer at Round Rock Capital Advisors Co., a Tokyo-based hedge-fund advisory firm. “We benefited from a recovery in the credit market and we were able to capture the volatility in both upward and downward market movement.”

The R-SQUARED Master Fund, a multi-strategy hedge fund that Round Rock advises, returned more than 6 percent in July, based on preliminary figures.

Asia Leads

All seven regional indexes advanced, led by Asian funds with a 3.56 percent gain, the preliminary report showed. Hedge funds in North America rose 1.54 percent, while European funds added 1.51 percent, Eurekahedge said.

Event-driven funds, which invest in companies undergoing transactions such as mergers or spinoffs, and long-short funds that trade on rising and falling stock prices were the best performers in July, gaining 2.67 percent and 2.03 percent.

For the year-to-July, funds investing in distressed debt were the best performers, gaining 7.6 percent with inflows totaling $8.7 billion, Eurekahedge said.

Eurekahedge’s preliminary report is based on 35 percent of funds reporting returns for July. The research firm plans to release a full report on Aug. 17.

The hedge-fund benchmark advanced 19.7 percent last year, its best performance since 2003, after a decline of 11.1 percent in 2008.

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

To contact the reporters on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net; Warren Giles in Geneva at wgiles@bloomberg.net