September was positive for Asian hedge funds, with the Asia ex-Japan index rebounding from a 0.9% fall in August to a 4.04% rise, according to Hedge Fund Research (HFR). Leading the charge were the energy, distressed/restructuring and convertible-arbitrage indices, each with positive monthly returns of around 4.5%.

Year-to-date, convertible arbitrage is the leading strategy, with a 53% positive return, but bear in mind this follows 2008 when the strategy was one of the worst performers with a 33% fall. A 33% fall followed by a 53% rise brings you, more or less, back to where you started, hence performance fees may still be insignificant in 2009, due to high-water marks.

Statistics from Edhec Business School support these findings, putting convertible arbitrage returns for the year at 41% on average.

After managed futures and CTA strategies shot out the lights last year, 2009 hasn't been such a good year, with those strategies down 1% in 2009 to September 30, according to Edhec.

However, one managed futures fund -- Hong Kong's Vegasoul Fund, named in May as AsianInvestor's Best Asia-Pacific Hedge Fund -- bucked that trend and is up 14% this year, on the back of a 63% return in 2008.

"Most CTAs, the long-term trend followers, will complain about the decline in volatility, and some are too one-dimensional in time frame to capture the volatility and too slow to reverse their shorts on stock indexes and currencies," says Vincent Wong, managing director of Vegasoul Capital Management. "The short-term CTA who claims to be non-correlated is about flat, and they will complain about the lack of volatility."

The problem is that most of them are way over their capacity, because they have to increase the number of contracts they trade in an environment where the notional values of futures contracts traded is declining, adds Wong. "We don't suffer from any of these issues, and our systems are extremely diversified and spread across the whole time spectrum, which allows us to capture the change in volatility much better."

Meanwhile, money is moving back into hedge funds, says HFR, with $38 billion of new money arriving in the third quarter. Alas, $37 billion was taken out during the same period, but, as the old Devonian saying goes, "tis better to be a billion up than a billion down".

That fresh billion represents the first uptick in assets for 12 months, while last year saw $330 billion vamoose from the industry. Two-thirds of hedge funds said they witnessed inflows during the third quarter.