The pattern of negative money flows improved markedly in third quarter, with the hedge fund industry recording outflows of USD6.16bn – a reading 87 per cent less severe than the second quarter’s, according to a report by Lipper Tass.

For the rolling one-year period as of the end of September, the net money outflows of the hedge fund segment amounted to USD314.56bn—an amount accounting for about 90 per cent of the sum of all negative quarterly money flows to the industry since first quarter 1994.

The modest outflows reading for third quarter 2009, combined with the overall broad hedge fund index’s solid performance of 7.27 per cent over the quarter, produced an increase in global hedge fund assets from USD1.21trn at the end of June to USD1.29trn at the end of September.

At the end of September the cumulative net outflows suffered by all hedge fund strategies except emerging markets, equity market-neutral, fixed income arbitrage, long/short equity, and managed futures in the first nine months of 2009 increased from the readings for the whole of 2008.

Net outflows for the period January-September 2009 accounted for 13.86 per cent of the beginning-year assets, up from the 11.43 per cent recorded for the four quarters of 2008 and the 13.35 per cent for the first six months of 2009.

Despite that hedge funds globally consolidated their upward trend in the third quarter as the stock markets extended their rally on upbeat economic data, better quarterly earnings, and positive market sentiment—also sustained by the G20’s September meeting announcement about better coordination across countries of economic policies in order to avoid global financial crises—some hedge fund strategies recorded net redemptions for the quarter.

Net outflows were concentrated in selected hedge fund strategies, namely convertible arbitrage, dedicated short-bias, equity market-neutral, event-driven, global macro, and multi-strategies.

Some hedge fund strategies appeared to deliver mainly beta-driven returns in the third quarter, benefiting from the leverage offered by the uptrend in the stock market cycle, while adding a diversified risk-premium component.

The stock market rally from the March lows appeared to lose momentum at the end of August as concerns about the sustainability of an economic recovery and persistent problems in the financial system mounted.

Only dedicated short-bias, managed futures, and—when restricted to the Barclays Global Aggregate Bond TR Index—equity market-neutral showed negative betas against both equity and bond market indices. Convertible arbitrage, emerging markets, and fixed income arbitrage showed significant betas against global bond, emerging bond, and commodity indices.

The emerging markets, equity market-neutral, and fixed income arbitrage strategies’ beta readings against the Reuters/Jefferies CRB Index suggested a commodity-driven component of strategies’ performance throughout the quarter.

Confirming the pattern shown in second quarter 2009—although of a different magnitude—the largest hedge fund strategy outflows in US-dollar terms were again experienced by multi-strategies at USD13.68bn and event-driven at USD6.76bn.

The third quarter readings continued to suggest a deterioration in the appeal of those strategies for investors; the combined outflows across the strategies amounted to USD20.44bn (332.01 per cent of the overall money flows for the quarter), compared to USD40.67bn of outflows for second quarter 2009, USD54.27bn of outflows for first quarter 2009, and USD38.91bn of outflows across the same strategies for fourth quarter 2008.

Consolidating the healthy return posted for second quarter 2009 (+6.27 per cent), in absolute terms the performance of the Credit Suisse/Tremont Broad Hedge Fund Index for third quarter 2009 came in at a solidly positive 7.27 per cent—the highest quarterly performance reading since last quarter 1999. Despite solid performance, in relative terms the Credit Suisse/Tremont Broad Hedge Fund Index underperformed both developed and emerging stock market indices, convertible indices, and emerging bond indices.

Conversely, the Credit/Suisse/Tremont Broad Hedge Fund Index outperformed traditional bond aggregated and commodity aggregated indices.

Generally speaking, in risk/return terms the Credit Suisse/Tremont Broad Hedge Fund Index performed better than the market indices for the third quarter by limiting drawdowns and posting considerably less volatility in annualized terms. For the six-month period as of the end of September the Credit Suisse/Tremont Broad Hedge Fund Index showed a better risk/return profile than most market indices, except the JP Morgan EMBI+ and the UBS Global Convertible Bond Indices.


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