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Event driven, equity hedge and energy hedge funds lead HFRI performance

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The dissident voice of the outspoken shareholder activist may have grown slightly louder in February, as Event Driven hedge funds led a strong month of hedge fund industry gains, with the HFRI ED: Activist Index posting the strongest monthly gain in two years.

Overall, the HFRI Fund Weighted Composite Index® posted a gain of +1.85 per cent for the month, the best performance for the broad-based composite since February 2014, with gains across all strategies led by Event Driven, Equity Hedge and a recovery in Energy-focused strategies.  The HFRI Fund of Hedge Funds Index advanced +1.63 per cent for the month.
            
The HFRI Event Driven Index gained +3.0 per cent in February, the best monthly return since October 2011, with gains across all sub-strategies led by the HFRI ED: Activist Index, which returned +4.4 percent. Activist hedge funds have increasingly come into favor with investors for several years, driven by strong performance, dynamic individuals and high profile campaigns to improve shareholder returns via increased board representation, strategic acquisition or divestiture, and other capital structure improvements including increased dividends, buybacks or debt issuance. Complementing these gains, other ED sub-strategies also produced strong performance with the HFRI ED: Special Situations Index also gaining +4.4 percent, while the HFRI ED: Distressed Index advanced +2.1 percent. Total capital invested in Event Driven strategies increased to USD754 billion as of YE 2014, with nearly USD120 billion of this in dedicated Activist hedge funds.
            
Equity Hedge strategies also saw significant gains in February, with the HFRI Equity Hedge Index gaining +2.8 per cent, the strongest monthly return since January 2013. EH performance was led the HFRI EH: Multi-Strategy Index, which returned +4.1 per cent for the month, the best performance since October 2011.  The volatile HFRI EH: Energy/Basic Materials Index climbed +2.3 per cent for the month, snapping five consecutive months of losses over which the Index saw a drawdown of -16.5 percent. Similarly, the HFRI Emerging Markets: Russia/Eastern Europe Index ended a seven-month losing streak by advancing +11.75 per cent in February, and the HFRI EH: Fundamental Value Index, the largest sub-strategy of all HFRI Indices, was up +3.1 percent, the largest monthly gain since January 2013.
            
Fixed income-based Relative Value Arbitrage strategies also posted the strongest gain since January 2013, despite the sharp increase in yields coming off the prior month’s record lows. The HFRI Relative Value Index gained +1.75 per cent in February, led by Volatility-based and Credit Multi-Strategy exposures. The HFRI RV: Volatility Index gained +4.0 per cent in the month, the strongest gain since Index inception in January 2008, while the HFRI RV: Multi-Strategy Index was up +2.0 percent, its strongest gain since September 2010.
            
Macro hedge funds were also in positive territory as both quantitative, trend-following and fundamental discretionary strategies adjusted and re-calibrated exposures as a result of reversals in Commodities, Fixed Income and Currencies. The HFRI Macro Index advanced +0.06 percent, the tenth gain in the trailing 12 months, as gains from Discretionary strategies offset losses in Systematic Macro. The HFRI Macro: Discretionary Thematic Index gained +2.1 per cent in February, the best monthly performance since January 2013, while the HFRI Macro: Systematic Diversified Index declined -0.3 per cent, snapping six consecutive monthly gains in which the Index advanced nearly 16 per cent.  The HFRI Active Trading Index climbed +1.3 per cent, while the HFRI Commodity and Currency Indices fell -0.7 and -0.8 percent, respectively.

“The favorable trend toward Shareholder Activist hedge funds accelerated in February, with strong performance fuelling investor demand for strategies with the expertise, capital and presence to effectively execute in the Activist space,” says Kenneth J Heinz, President of HFR. “The combination of variables which has contributed to the Activist trends, including high corporate cash holdings, improving investor risk tolerance and equity market gains which expose poor management strategy execution, show no signs of slowing, even with categorical strategy volatility from last October. The captive and growing audience of global investors interested in improving strategy, governance and returns are likely to continue to drive growth in Activist hedge funds in 2015.”

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