Palomar's structured credit hedge fund index falls again

The Palomar Structured Credit Hedge Fund Index, published by Structured Credit Investor, experienced negative gross and net returns for the second month in a row in November, with just 14 out of 30 funds reporting positive results.

The index posted a gross decline of 2.204 per cent in November and a net decline of 2.32 per cent. Two funds were removed from the index due to liquidation, bringing the total number of funds in the index to 30 from a high of 40 in July.

'The large and indiscriminate decline of prices of asset-backed securities, as well as the severe contraction of available credit, led to big losses at a number of weaker structured credit hedge funds that failed to take measures to mitigate market risk and financing risk,' says Palomar managing director George Tintor. 'On the other hand a number of funds managed the risk well and posted record returns. The index's poor performances reflect both the strong and weak funds.

'In 2008 we are left with a number of the stronger funds that are positioned to do well. They have a lot of embedded value in marked-down long positions, large cash balances, low leverage and short positions with significant value left in them. This is a good time for institutions to invest in these funds.'

Three sub-strategies - long investment-grade leveraged, long junior value-oriented and relative value intra-credit - reported negative results in November, while the short bias and correlation sub-strategies fared best. The dispersion of returns decreased substantially and the range narrowed slightly compared with October's data.

As a result of the overall pattern of negative returns since June and the credit crunch, the gross and net indices' cumulative returns since index calculation began in January 2005 have suffered, falling to 99.08 per cent and 93.31 per cent respectively.

The index is designed to provide a monthly measure of the performance of open, investible structured credit hedge funds and is calculated as both gross and net asset value. It is compiled and managed by Palomar Capital Advisors, an independent Zurich-based financial advisory firm that specialises in structuring, managing and placing credit-related securities.

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