Hedge funds were up 0.44% in July as managers provided downturn protection to their portfolios in a month that saw global equity markets decline

The Eurekahedge Hedge Fund Index gained 0.44% in July; a month marked by high risk aversion arising from uncertain macroeconomic conditions, the ongoing debt crisis in Europe and the drawn out political debate in America regarding the US debt ceiling. Hedge funds were able to provide substantial downturn protection amid these conditions while global markets were mostly down during the month as the MSCI World Index declined by 2.59%.

July 2011 and June 2011 returns across geographical mandates

Returns were mixed among the regional mandates with Asia ex-Japan managers posting the best performance for the month. The Eurekahedge Asia ex-Japan Hedge Fund Index was up 1.11%, with the majority of gains coming from long/short equity hedge funds. Although Australia, China and India (the largest Asia ex-Japan markets), posted declines of 3.98%, 2.18% and 3.44% respectively, managers investing in these countries were able to extract gains through their short exposures as well as value opportunities.

Asset flows update

Hedge funds posted another month of outperformance in July with the Eurekahedge Hedge Fund Index gaining 0.36% during the month. The industry also continued to attract capital for the eighth consecutive month while managers in all regions outperformed their respective underlying market indices. The MSCI World Index declined by 2.59% during the month due to concerns of the global economic recovery, the European debt crisis and the US debt ceiling situation.

Total assets under management (AuM) increased by US$16.1 billion in July, bringing the size of the industry to US$1.82 trillion and managers added US$11.8 billion through performance based growth despite the subdued outlook on global markets. Additionally, investors continued to allocate capital during the month with net positive asset flows of US$4.3 billion.

Figure 1: Summary monthly asset flow data since December 2008

Key highlights for the month of July:

·         All regions outperformed underlying markets for the third consecutive month

·         Hedge funds outperformed global markets by 3.21% in July and remained ahead by 2.52% YTD

·         All regions outperformed underlying markets for the third consecutive month

·         Hedge funds outperformed global markets by 3.03% in July and remained ahead by 2.35% YTD

·         CTA/managed futures funds posted gains of 1.87%

·         52.5% of global hedge funds were above their 2007 high-watermarks

·         July was the eighth consecutive month of net inflows with US$4.3 billion coming into the sector

·         Assets in multi-strategy funds crossed US$300 billion to reach record highs

·         Assets in macro hedge funds reached a historical high of US$125.3 billion