Macro and systematic strategies fare best during tough year for FoHFs

Date: Wednesday, June 6, 2012
Author: Will Wainewright, HFMWeek

Macro and systematic trading strategies, low-beta equity hedge and fixed income strategies did a “reasonable job of containing losses” during a poor year for the fund of hedge funds (FoHF) sector in 2011, according to financial research firm S&P Capital IQ, which has also initiated a new grading system as a result.  

Among the FoHFs graded by S&P, just four made money, with the only commonality between them being a “fairly conservative” management approach. Asia- and emerging market-focused vehicles were the hardest hit.

FoHF asset levels remained flat in the 12 months through March 2012, the firm noted.

S&P has also begun grading FoHFs in terms of how they rate against peers, rather than by absolute return targets. In a sign of the increasing performance difficulties facing FoHFs, S&P said 90% of the peer group would be “ungradeable” when judged against absolute return targets as market conditions worsened.

 “In theory, FOHFs are supposed to make money in all market conditions; in reality their performance tends to suffer when equity markets are falling, albeit to a lesser degree,” said analyst Randal Goldsmith.