Hedge Funds Break Even
Friday, March 12, 2010

Hedge funds as measured by the Greenwich Global Hedge Fund Index (GGHFI) recouped January losses during the month of February to move almost even on the year.

The GGHFI returned 0.68% compared to global equity returns of 3.1% in the S&P 500 Total Return, 1.23% in the MSCI World Equity, and 3.2% in the FTSE 100 equity indices. 65% of constituent funds in the GGHFI ended the month with gains.

“The majority of hedge fund strategies were positive in the month of February,” notes Clint Binkley, Senior Vice President at Greenwich Alternative Investments. “The returns of Long-Short Equity and other directional strategies reflect the cautious stance of managers following the Greek debt crisis. Net exposures were slow to increase in the latter half of February as funds waited for more positive economic indicators.”

Long-Short Equity managers trailed most major equity indices but still gained 0.90% in February. Growth and Opportunistic funds posted almost identical results, gaining 0.88% and 0.85%, respectively. Value-based funds posted slightly better performance, gaining 1.06%. Short- Biased funds didn’t fare as well, as managers lost 1.23% on average.

Market Neutral funds gained in February, advancing 0.58% on average due once again to positive performance across multiple strategies. The Event Driven sector advanced by 0.44% although performance was mixed among strategy groups. Funds investing in Distressed Securities lost 86 basis points on the month while Merger Arbitrage funds gained almost 1%. Arbitrage strategies posted a modest gain of 32 bps with Convertible Arbitrage and Fixed Income Arbitrage gaining 0.20% and 0.17%, respectively. Equity Market Neutral funds were the best performing group of Market Neutral managers in February, advancing by 0.95% in their best month since May 2009.

Directional Trading funds bounced back from their loss in January to post positive returns of 0.64% in February. Macro funds showed the best returns of any hedge fund strategy during the month, gaining by 1.34%. Managed Futures funds posted a modest gain of 0.40%, snapping a two month losing streak. Systematic strategies performed slightly better than Discretionary models.

The Greenwich Long-Short Credit Index declined by a modest 18 basis points in February, its first monthly loss in almost a year. Multi-Strategy funds advanced slightly but still trailed the GGFHI, picking up 20 basis points.

On a regional level, hedge funds concentrating on North American markets were the best performing managers in developed regions, followed by funds investing globally, with returns of 1.54% and 0.74%, respectively. Europe was the weakest developed region in February for hedge funds, gaining 0.21%.

Emerging Market hedge funds showed mixed results but declined as a whole in February, as the Greenwich Composite Emerging Market Index fell 64 bps. Funds investing in Europe pared back their gains from January, retreating 2.35%. Latin American and South American funds were the best emerging market performers for the month, advancing 0.91%. Asian emerging market funds treaded water, gaining only 6 basis points for the month and remained the weakest performers year-to-date.