Friday, 23 October 2009

Shallow/Narrow Profits Recovery for the HF Industry

Credit Suisse Tremont Index LLC yesterday released a new research piece, "Q3 2009 Hedge Fund Update: On the Road to Recovery". One of the points the report makes is that 26% of all hedge funds have “fully recovered” their losses from 2008, i.e., they have regained all losses to meet or surpass previous peak performance levels.

Last year around 30% of hedge funds made a positive absolute return. So given that, the proportion of hedge funds hitting their high water marks this year is still relatively low. This reinforces the point that last years winners are this years losers in the performance ranking stakes. Better profitability for hedge fund firms as a whole is still not here yet.

Last week HFR of Chicago released their take on the flows of 3Q 2009. They said that "Over two-thirds of all hedge funds experienced capital inflows in 3Q, accounting for over $38 billion in new assets; however, these gains were largely offset by over $37 billion in capital outflows from investor redemptions and liquidations, resulting in a net inflow of only $1.1 billion."

HFR continued that "In contrast to the first half of 2009, redemptions were concentrated in specific strategies. Hedge funds in the Relative Value Arbitrage and Event Driven space experienced a total net redemption of more than $5.7 billion during the period."

So while flows have gone from negative to positive for the industry, only in some strategies and only for some managers within them is decent profitability being attained.

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