Early estimates indicate that the HFN Hedge Fund Aggregate Average, an equal weighted average of all single-manager hedge funds and CTA/managed futures products in the HedgeFund.net database, was up 2.41 per cent in May and 6.88 per cent in the first five months of 2007, compared with a return of 11.99 per cent for the whole of last year.

The increase was the highest for May since 2003 and the second best since 1997, and is in stark contrast to the sector's performance a year earlier, when the HFN average was down by 1.5 per cent.

The HedgeFund.net database consists of more than 7,300 hedge funds, funds of funds and managed futures products. The results reported by HFN cover returns from funds reported up to June 7.

According to HFN, rising global equity markets were the main driver of strong hedge fund returns. The HFN Long Only Average, the most highly correlated HFN benchmark to broad equity market returns, returned 5.98 per cent in May, almost double the 3.15 per cent of S&P 500 TR index.

Broad directional equity-related strategies again outperformed their relative value counterparts, despite the difficulty facing short-biased managers. The HFN Equity Hedge Aggregate Average rose by 2.72 per cent in May to bring the total 2007 gain to 8.24 per cent, while the Relative Value Aggregate Average was up 1.72 per cent in May and 6.09 per cent for the year.

Funds investing in emerging markets continued to benefit from a combination of rising equity markets, strong currencies and tightening bond yields in major emerging economies. The HFN Emerging Markets Average gained 3.31 per cent in May and is up 10.43 per cent in 2007.

The HFN Energy Sector Average was up 3.11 per cent for the month and 10.98 per cent for the year, despite oil prices ending the month mostly down from the previous month's close and natural gas prices up only slightly.

Distressed, event-driven and special situations funds continued to benefit from rising levels of capital spurring corporate restructurings, mergers and buyouts. The HFN Distressed Average was up 1.58 per cent in May and 7.50 per cent foe the first five months of the year, while the Event Driven Average was up 1.95 and 9.15 per cent respectively and the Special Situations Average by 2.74 and 9.35 per cent.

Arbitrage again lagged other strategies, but continued to post positive monthly returns. The HFN Convertible Arbitrage Average was positive for a 19th consecutive month with 0.99 per cent in May and 4.47 per cent in 2007 to date.

The Fixed Income Arbitrage Average was up by 0.93 and 3.90 per cent respectively, the Capital Structure Arbitrage Average by 1.30 and 5.11 per cent, and the Statistical Arbitrage Average by 1.57 and 7.27 per cent.

Asia was the best-performing region in May with a monthly gain of 5.36 per cent and 10.16 per cent for 2007 so far (compared with 8.22 per cent for the whole of 2007) for the HFN Asia Average, which covers funds investing in the region. The Latin American Average gained 5.06 per cent for the month but was up 14.80 per cent for the year, while Europe posted increases of 1.19 and 6.92 per cent and the US of 1.95 and 6.37 per cent.


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