Hedge funds lost 1.31% in August with Emerging Markets, High Yield and Macro strategies posting declines while quantitative funds broadly represented across strategies including Equity Market Neutral, Equity Hedge, Relative Value Arbitrage and Macro recovered over 65% of August intra-month losses by month-end, according to the latest data from Chicago-based Hedge Fund Research, Inc (HFR).
Industry performance data is based on the HFRI Fund Weighted Composite and August performance results are based on fund data reported through 10 September 2007. Though results continue to be updated throughout the month (consistent with index methodology), the current data reflects reporting from more than 40% of approximately 2,000 index constituent funds, a figure on the high end of the range historically observed (25-45%) at first index update. Recent index and asset results include a number of funds that have liquidated or experienced investor redemptions.
'Hedge fund performance volatility increased at the end of July and has persisted into September, driven in part by investor concern about continued deterioration in the sub-prime mortgage sector and the corresponding impact on access to liquidity by both consumers and corporations,' says Kenneth Heinz, president of HFR. 'While a number of strategies posted losses for the month, much of these aggregate, intra-month losses were pared into month end.'
Heinz also noted an increased dispersion both between hedge fund strategies, as well as between funds within the same strategies.
Other data of note from the HFR report includes:
Quantitative funds, broadly represented across strategies including Equity Market Neutral, Equity Hedge, Relative Value Arbitrage and Macro, recovered over 65% of August intra-month losses by month end.
'Performance of quantitative funds is typically influenced by model-driven factors including the persistence of investor behavior and the mean reverting characteristics of the relationships between securities, both long and short, to their historical or predicted levels,' says Heinz. 'Disruption of these can negatively impact performance but to the extent that those relationships are re-established, performance can also recover.'
Equity Market Neutral strategies, which are primarily quantitative in nature but represent only a portion of all quantitative strategies, lost 0.71% in August.
HFR reported positive fund flows for July month end, the most recent period captured by HFR data, with industry assets under management climbing by USD 16.8 billion to a record USD 1.76 trillion, representing an increase of less than 1% over 2Q07 estimate. The increase in assets is net of a decline of nearly USD 1 billion in performance based asset decline.
'On the back of a strong 2Q, July was another positive month for the industry in terms of capital flows, with performance volatility occurring into July-end. Dispersion in asset growth also increased, with evidence of investors reallocating capital to specific funds demonstrating positive performance in this volatile environment,' says Heinz.
HFR is providing access to the full range of August data in a special July/August industry edition of its industry report, which includes information on distribution of fund subscription, redemption and notification periods.