Hedge funds in 2009 recovery

The average hedge fund recorded gains of 2.42 per cent in July data released by hedge fund data provider Hedge Fund Research shows. Hedge fund assets have increased on average by more than 12 per cent in the first seven months of this year. In July the increase was driven by higher equity market returns, Hedge Fund Research said.

July was the fifth month of consecutive gains for the industry, which lost a record 19 per cent overall in 2008. While the hedge fund industry currently experiences its best year since 1998, most fund manager have not yet recovered from last year’s losses and record redemptions in the final quarter of 2008.

Assets invested in hedge funds increased by $100 billion in the second quarter of 2009. For the industry which had a total of US$1.43 trillion in assets it was the first increase since reaching a peak of US$1.93 in the second quarter of 2008, Hedge Fund Research said.

The asset growth benefited from the strong performance of funds focusing on emerging markets, convertible arbitrage and energy and basic materials, strategies which were among the biggest losers in 2008, Hedge Fund Research reported. In July fixed-income funds using convertible arbitrage, a strategy that matches the purchase of convertible bonds with short positions, continued to perform strongly.

A slowing in investor withdrawals by approximately 60 per cent in the second quarter of 2009 also contributed to the asset growth. Investor redemptions dropped from a record US$152 in the fourth quarter of 2008 and US$103 billion in the first quarter of 2009 to US$42.8 billion in the second quarter.

Capital redemptions were higher among funds of hedge funds at US$33 million in the second quarter. The capital invested through funds of hedge funds totalled US$530 billion still significantly below its peak level of US$825 in 2008, Hedge Fund Research data showed.