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Hedge funds post November gains as fiscal cliff looms

Hedge funds posted gains in November as equities traded in a wide intra-month range following the US Presidential election and as global financial markets focused on the US fiscal cliff.

The HFRI Fund Weighted Composite Index gained 0.35 per cent for the month, posting its fifth gain in the last six months, according to data released by HFR.

Relative value arbitrage (RVA) and event driven (ED) strategies were top contributors in November, with both the HFRI Relative Value Arbitrage Index and HFRI Event Driven Index gaining 0.7 per cent. RVA strategies remain the top area of hedge fund strategy performance YTD, with the HFRI RVA Index up 9.5 per cent through November.

All RV sub-strategies posted gains for the month, with top contributions from strategies specialising in volatility arbitrage and asset backed exposures, with these gaining 1.2 and 1.1 per cent, respectively. The HFRI RV: Asset Backed Index is the top area of sub-strategy performance YTD, with a gain of nearly 16.0 per cent through November. Relative value arbitrage strategies have continued to attract investor capital for steady performance, having posted gains in 41 of 47 months since December 2008.

Event driven strategies, which invest broadly across merger arbitrage, distressed and activist situations, posted the sixth consecutive monthly gain, benefiting from a strong M&A environment, as well as increased and special dividends announced ahead of possible tax increases. The HFRI Merger Arbitrage and Distressed Indices gained 0.8 and 0.6, respectively, in November, while Activist managers posted gains of 2.8 per cent.

Equity hedge funds advanced 0.4 per cent in November, with top contributions from quantitative directional and fundamental growth, which gained 1.4 and 0.8 per cent, respectively. The HFRI Macro Index was essentially flat for the month, as gains in currency, discretionary and active trading funds offset declines in commodity and systematic diversified CTA strategies.

Emerging markets hedge funds also posted their sixth consecutive gain as total hedge fund capital invested in emerging markets reached a record level, with the HFRI Emerging Markets Index gaining 0.9 per cent. The HFRI Fund of Hedge Funds Composite Index also posted a gain of 0.4 per cent, in line with the single-manager HFRI Fund Weighted Composite.

“Hedge funds posted gains in November while limiting, modifying and, in some cases, reducing exposure on continuing fiscal, political and geopolitical uncertainty,” says Kenneth Heinz, president of HFR. “Arbitrage and event driven strategies were able to generate gains as a result of strategic positioning for the uptick in the M&A environment, including not only deal announcements and spread tightening, but also an increase in special dividends and a motivation to close transactions by year end. With a significant amount of near term uncertainty, managers continue to find attractive opportunities in these areas, while also preparing for a continuum of possibilities for resolution of, or failure to resolve risks associated with, the US fiscal cliff.”

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