May results bolster hedge fund fightback

Hedge funds enjoyed their third consecutive month in May as fears for the beleaguered sector on the back of heavy redemptions and regulatory scrutiny gradually ease.

All hedge fund strategies except dedicated short bias were up throughout May, with an overall return for the Credit Suisse /Tremont Broad Hedge reaching 4.06%. The average performance for the 7,000 hedge funds, tracked by Lipper, was a positive 5.77%—171 bps above the Index.

Monthly performance dispersion among Credit Suisse/Tremont hedge fund strategy indices tightened in May to 751 basis points (bps) after peaking in April at 1,474 bps. May’s reading compared to a monthly average since 1994 of 889 bps.

A record 143.81-percentage-point monthly performance difference in May divided the top and bottom performers of the 7,000 actively reporting hedge funds tracked by Lipper.

Emerging Markets strategies topped the charts, with an overall return of 6.96%.

The positive results come after consecutive tumultuous events for hedge funds. In May, the EU published a draft directive for the regulation of hedge funds that left many managers and industry bodies cold. In particular, the prospective rules would require alternative fund managers, rather than funds themselves, to register and require government authorisation.

There would also be reporting, governance and risk management standards, including minimum capital requirements, which may make European distribution for US-based managers and expensive process. Further, non-EU funds, if the proposals were implemented, must comply with tax sharing agreements.

The draft proposals were condemned by industry bodies, including the Alternative Investment Management Association.

Redemptions have also slowed, and this has helped bolster hopes for a quick rebound in the sector.

Last year, a record USD 152 billion was demanded from investors, including pension funds and private individuals, according to Hedge Fund Research. Assets under management have dropped from USD2.6 trillion two years ago to around USD1.8 trillion today, according to statistics from Data Explorers.