Hedge funds survive October

Hedge fund returns for October may have outperformed the overall market, but aggregate figures for the first 10 months of 2008 make for grim reading.
Asian hedge funds were down 5.3% for October, during a turbulent month in which the MSCI World index was down 19.1%. Hedge funds have been slashing gross and net exposures, which helps to account for their lower losses.

The Eurekahedge fund index was down 3.9% in October, and following on the heels of a September decline of 5%, it represents the worst month-on-month hedge fund performance in a decade.

In October, CTA/managed futures were up 6% according to Eurekahedge, bringing them up 16% for 2008 so far. While macro stayed flat, every other strategy slumped, with long/short, event driven and relative value all flirting with 5% declines. Arbitrage and multi-strategy were down 3.5%. At the rear were fixed income and distressed debt with 10% falls.

Eurekahedge recorded $68.1 billion in redemptions from hedge funds in October and just $5.4 billion in new inflows, illustrating how the capital raising tap has continued to run dry. Combined with the monthly losses, the world of hedge funds, measured in dollars, shrank by $110 billion to $1.65 billion in that one month.

Although the MSCI World Index was down 40% for the first 10 months of 2008, it is in their 10-month aggregate returns where the sense of unease about hedge fund performance really kicks in, as there has been a notable absence of months where the trend has been bucked.

Asian hedge funds are down 21% overall so far in 2008. Asia ex-Japan funds have lost 26% and Japanese strategies are down 14%. In splendid isolation at the back of the field is India. Indian hedge funds have declined by 53% so far in 2008, safely proving that although there were many people claiming that IndiaÆs growth story in 2006 and 2007 would be sustainable, they were wrong.
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