Hedge fund performance was adversely impacted by the escalation of the Euro-centric sovereign bond crisis in May, with the HFRI Fund Weighted Composite Index declining by 2.26 per cent for the month.
May was the worst performance month since November 2008 and, inclusive of the recent loss, hedge funds have surrendered a large portion of early year gains, ending the first five months of 2010 with a gain of 1.32 per cent.
Hedge funds were broadly impacted by the sharp increase in risk aversion associated directly with the sovereign bond crisis escalation, as well as the effects this situation has had on global equity markets, corporate fixed income and currency markets.
Equity hedge was the worst area of strategy performance, declining 3.7 per cent in May, the worst month since November 2008.
Global equity markets were broadly impacted by the increase in risk aversion, with weakest areas of performance in fundamental growth only partially offset by gains in short biased and equity market neutral strategies.
Event driven also posted sharp loss of 2.2 per cent on increasing risk premiums in announced transactions and weakness in the corporate credit markets, with weakest areas of performance in distressed and shareholder activist strategies.
Relative value arbitrage posted a loss of 0.98 per cent, as losses in convertible arbitrage and corporate credit strategies were only partially offset by gains in volatility and asset backed strategies. May losses have pared 2010 gains for relative value arbitrage, bringing year-to-date performance to four per cent, but May also snaps a streak of 16 consecutive months of gains for relative value – the last monthly decline was December 2008.
Macro posted a loss of 0.94 per cent as gains in currency focused funds were offset by losses in other discretionary macro strategies. Systematic diversified macro experienced a wide dispersion across constituents, with an average decline of one per cent in May.
