Hedge Funds Battle May Tides
Friday, July 02, 2010

The Greenwich Composite Investable Index shed 2.18% during May in a difficult market for hedge funds and investors worldwide.

All Greenwich Investable Indices moved lower on the month, albeit to a lesser extent than the precipitous drop experienced by global equity markets, Greenwich Alternative Investments announced on June 30.

The Greenwich Investable Equity Market Neutral Index was the best performer in May, losing 24 basis points. More directional strategies were not as fortunate, as the Greenwich Investable Futures Index lost 3.27%.

The Long-Short Equity Investable Index also lost 2.61%, its largest loss of the year but a fraction of the 10% decline experienced by the MSCI World Equity Index. Year-to-date, five of nine Greenwich Investable Index Strategies remain positive on the year with Event-Driven and Long-Short Credit gaining 5.84% and 5.24%, respectively.

“The depth and speed of the correction in May caught market participants by surprise," observed Clint Binkley, Senior Vice President at Greenwich Alternative Investments.

"Hedge funds did their best to mitigate market risk but managers with even marginal net exposures suffered as a result of the dramatic sell-off. However, the relatively low level of losses in directional hedge fund strategies as compared to global equity returns clearly demonstrates the capital preservation priorities of the hedge fund asset class,” Binkley noted.

Charles Gradante, Co-Founder of Hennessee Group, said earlier this month that May was the worst month of the year for hedge funds and the worst monthly drawdown since October 2008. However, he pointed out that hedge fund managers avoided significant losses and outperformed traditional benchmarks on a relative basis due to conservative exposures, hedging and short positions.

“In May, we saw investors significantly de-risk portfolios as volatility increased. Given the negative headwinds that exist and potential global crises, hedge funds continue to operate with low gross exposure levels as they navigate an increasingly challenging investment environment," Gradante commented.

The Hennessee Group reported on June 7 that the Hennessee Hedge Fund Index declined 2.99% in May, although this compares to an 8.2% decline in the S&P 500 index. The Hennessee Index is up by 1.57% year-to-date.

RBC Capital Markets also reported that its RBC Hedge 250 Index, an investable benchmark of the performance of the hedge fund industry, fell last month, by 2.42%, bringing its year-to-date return to 0.29%.

Since its inception on July 1, 2005 through the end of April 2010, the RBC Hedge 250 Index has had an annualized net return of 4.28%. In comparison, over the same period, other investable indices have averaged 2.03% while non-investable indices have averaged 6.45%, according to information reported by the sponsors of those indices.