'Wall Street people learn nothing and forget everything.' - Benjamin Graham, 1894-1976
Performance
Hedge funds as measured by both the Greenwich Global Hedge Fund Index ("GGHFI") and the Greenwich Composite Investable Index ("GI2") withstood falling equity markets during the month of January to begin 2009 with gains. The GGHFI and GI2 returned +0.42% and +0.10% during the month, respectively, compared with global equity returns in the S&P 500 Total Return (-8.43%), MSCI World Equity (-8.85%), and ASX 200 Indices (-4.88). Of the constituent funds in the GGHFI, 59% ended the month with gains. January was an excellent start to 2009 for hedge funds despite a challenging environment in most equity markets. Three of four hedge fund strategy groups ended the month with gains while global bourses on average shed 6-10%. The value of hedge funds in mitigating severe losses has never more evident than in the start of 2009.
Market Neutral funds were the best performing group of managers in January, with funds gaining 1.85% on average and all sub-strategies showing positive returns. The results of managers trading in debt instruments were encouraging for the sector as most managers turned in strong gains. Convertible and Fixed Income Arbitrage managers advanced 5.41% and 2.33%. Event Driven managers also contributed to hedge fund gains, netting 1.44% on average. The best performing sub-group among these managers was Special Situation funds, netting 2.34%. Equity Market Neutral managers also managed to advance despite volatile equity markets, gaining 1.63%.
Long/Short Equity managers were essentially flat on the month despite volatile and falling equity markets, dropping 0.10%. Value and Opportunistic funds were both slightly positive on the month, returning +0.15% and +0.48%, respectively. Growth managers in contrast, lost 0.98% on average. Short sellers were the best performing group of long/short funds due to declining equity markets, gaining 1.53%. Directional Trading funds also began 2009 on a positive note, gaining 0.18%. Macro and Market Timing funds advanced with returns of 0.98% and 2.04%, respectively. Futures managers, one of the strongest performing sub-strategies of 2008, declined 0.14%. Finally, Specialty Strategy managers posted mixed results but ended the month with a gain of 0.42% on average. Emerging Market funds declined marginally, losing 1.46% while Fixed Income and Multi-Strategy managers advanced 2.61% and 1.42%, respectively.
|
Greenwich Alternative Investments Hedge Fund Index |
|||||||||
Total Return |
3 Yr Annual |
5 Yr Annual |
|||||||
Index |
Jan 09 |
Dec 08 |
YTD |
CAR |
STD |
CAR |
STD |
||
| Global Hedge Fund | 0.4% |
0.7% |
0.4% |
-0.5% |
-13.2% |
0.6% |
7.2% |
3.8% |
6.4% |
| Global Long/Short | -0.1% |
1.0% |
-0.1% |
-2.1% |
-18.4% |
-2.1% |
9.2% |
2.9% |
8.3% |
| Global Market Neutral | 1.9% |
0.2% |
1.9% |
0.4% |
-9.8% |
1.7% |
5.7% |
3.5% |
4.7% |
| Futures | -0.1% |
1.6% |
-0.1% |
3.8% |
17.2% |
10.8% |
8.9% |
8.7% |
9.6% |
Benchmark |
YTD |
CAR |
STD |
CAR |
STD |
||||
| Barclays Capital Agg Bond Index | -0.9% |
3.7% |
-0.9% |
6.2% |
2.6% |
5.2% |
4.1% |
4.3% |
3.9% |
| S&P 500 Index | -8.4% |
1.1% |
-8.4% |
-14.1% |
-38.6% |
-11.8% |
15.8% |
-4.3% |
13.4% |
| MSCI World Index | -8.9% |
3.1% |
-8.9% |
-12.4% |
-42.8% |
-13.9% |
17.6% |
-4.4% |
14.9% |
| ASX 200 | |||||||||
| CAR= Cumulative Average Return, STD = Standard Deviation | Source: Greenwichai |
Meanwhile according to Australian Fund Monitors, the performance of Australian hedge funds and absolute return funds appears to be recovering in 2009. Results from nearly half of all Australian Fund Monitors (AFM) index of funds showed an average return of 0.65 per cent for January, according to data released by AFM, while the ASX 200 index fell by more than 5 per cent in the same period.
Non Equity funds such as Managed Futures, Global Macro, Commodity and Currency funds provided investors even better returns of +1.51%, whilst single managers (i.e. excluding Funds of Funds) returned 0.70%. Of equity based strategies, Equity Market Neutral managers performed best, returning 1.94% for the month, and 7.77% for the past 12 months.
Chris Gosselin, the chief executive of AFM, said that the hedge fund industry was adapting to financial crisis conditions, which was difficult in last year’s markets. This was the second consecutive positive return for hedge funds, with the industry recording returns of about 0.5 per cent in December.
Markets
In January, the financial crisis intensified by mid month, and then eased by month end. Volatilities as measured by the S&P 500 VIX index rose from 40% at the start of the month to 56% by mid month, ending back down at 45% by month end (see VIX chart below). Although high by historical standards, the volatility or ‘fear’ index is well below the levels it hit late last year. The Australian dollar fell against most major currencies in January, down 7.6% against the US dollar, 5% against the pound, 9.4% against the yen and 0.6% against the Euro. Overall, the dollar fell 5.5% against the trade-weighted index. Predictions are that the Reserve Bank has finalised this round of rate cuts, waiting for the stimulus to work its way through the economy.
Sentiment (based on macro manager survey)
Managers' outlook on U.S. equities turned decidedly more bearish in February. For the month, 0% of managers reported a bullish view of U.S. equities, while 44% of managers reported a neutral view and 56% reported a bearish view. Managers also reversed their perspective on the U.S. Dollar, with 67% expressing a bullish outlook versus 23% in January. For the month, 0% of managers held a neutral view of the currency. With respect to 10-year U.S. Treasury prices, macro managers again shifted their outlook from January as 44% of managers reported a bullish outlook, 22% a neutral outlook, and 33% a bearish outlook.
News
SEC to electronically monitor hedge funds
In the wake of the Madoff scandal, the US Securities and Exchange Commission plans to implement a sophisticated electronic monitoring system that will allow it to keep closer tabs on hedge funds and other alternative investments...more>>
EU leaders back sweeping financial regulations
European leaders meeting in Berlin on Sunday backed oversight of the world's financial markets and products, including hedge funds, and urged that sanctions be drawn up to punish tax havens...more>>
Customised Risk Dashboards help proactive risk profile management
Van Mac Group provides its clients with regular ‘Risk Dashboards’, snapshots of the risk and return for each fund in the portfolio compared with its peers in the same strategy for the most recent 12-month period. Bottom quartile statistics are highlighted, while other statistics include the Return, Volatility, Sharpe Ratio and Sortino Ratio, Maximum drawdown, and Correlation with the underlying strategy.
“Together these statistics allow investors from institutional clients to self-managed super funds to understand how their investment is performing, secure in the knowledge that we have enacted comprehensive risk management strategies,” says Van Mac Group Managing Director Scott MacDonald. “These strategies monitor manager style and strategy drift, uncover abnormal investment risks, monitor market risk, credit risk, operational risk, portfolio risk, event risk and model risk, maximizing returns irrespective of market condition.”
“Unlike many organisations which charge additional fees for this level of customised data analysis, our ‘Risk Dashboard’ faculty is a fundamental part of the service we offer,” continues Mr MacDonald. “This gives our clients complete transparency into their investment portfolio, something regulators around the world are now scrambling to introduce.”
“We’re also able to achieve this level of service for our clients at approximately 50 percent less for our clients than they currently pay by engaging wholesale fund of funds.”
Contact Van Mac Group for more information.
Trends
OECD and World Bank calls for pension modernisation
A joint OECD/World Bank report calls for urgent reform of Asia's retirement income systems, which it says are not prepared for the rapid population ageing forecast over the next two decades...more>>
UN to invest in hedge funds
The United Nations (UN) still see opportunities in hedge funds despite the ongoing slowdown in the industry. The UN's Joint Staff Pension Fund (UNJSPF) received the go-ahead this month from the UN Secretary General to start investing in funds of hedge funds as well as private equity funds. UNJSPF has not yet specified investment plans but said it was seeking experienced consultants for the "analysis, selection, placement and monitoring of hedge fund of funds and private equity placements"...more>>
AIMA launches hedge fund guide
Aimed at improving the transparency and understanding of hedge funds, superannuation trustees, advisers and investors now have a guide to hedge fund fundamentals, thanks to a new e-book from the AIMA...more>>
Research
Regulatory action and market conditions will force banks and hedge funds to tighten EDM controls on sensitive files
Facing extreme market conditions and imminent regulatory changes, banks and hedge funds need to adapt to changes in transparency, risk management and diffusion, as well as make measurable improvements to operational risk controls to prevent Madoff-style scenarios jeopardizing a firm’s survival, according to new research from TABB Group...more>>