| Most de-leveraging by fund-of-hedge funds has already occured |
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| 16/09/2007 | |
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For the first time this year, fund-of-hedge funds (FOHF) experienced net outflows in July, according to TrimTabs Investment Research and BarclayHedge. If the research is accurate, it would suggest that FOHF made their requests for redemptions as early as May, given that the notice period for redemptions range between 30 to 60 days. "Looking ahead, we believe that most de-leveraging by hedge funds has already occurred, but we expect further redemptions from hedge funds in August and September." TrimTabs estimates the outflow at $55bn in July or 4.7% of the £1.2tr in assets held by FOHFs. The redemptions contrast to inflows each month from January through June totalling $162bn for fund of funds. The figures, however, should be treated with caution as a number of large FOHFs reportedly enjoyed strong inflows. The €7bn Gottex Market Neutral Fund, for example, told bfinance that it has seen $400m in net inflows in August, and Conrad Gann, managing partner at Trim Tabs, has reportedly said that his firm is now updating its figures which it extrapolated from a database that covers a third of the hedge fund industry. According to the firm, the biggest hedge fund outflows in July were posted by fixed-income (-$11bn), followed by convertible arbitrage (-$6bn), emerging markets (-$6bn) and equity long bias (-$5bn). Distressed securities and multi-strategy posted $1bn inflows, respectively. Event-driven strategies, which received the most cash this year, did not see any change during the month. "As was painfully evident in recent weeks, hedge funds are not immune to market sell-offs. Eleven of twelve hedge fund categories have a positive correlation with the S&P 500. As we would expect, correlation is highest for equity long bias (58.17%) and emerging markets (53.62%). By contrast, distressed securities had the highest negative correlation with the S&P 500." Hedge fund returns of different strategies are also strongly correlated. Of the 11 categories and 55 possible correlations, only three are negative. Distressed securities, equity market neutral and fixed-income are the least correlated. Looking at the performance benchmarks, August was a difficult month, but not as catastrophic as some have depicted. The Hennesse Hedge Fund Index was down 0.72% for the month. Looking at the performance benchmarks, August was a difficult month, but not as catastrophic as some have depicted. The Hennesse Hedge Fund Index was down 0.72% for the month. VB |
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