The hedge fund industry now stands at 556 billion in total assets. Funds of hedge funds investing exclusively to relative value funds are up 6.54% year-to-date while emerging market funds have gained 6.18%.

Other highlights include:

• There are currently over 1300 funds up more than 10% YTD 2012 and almost 700 funds up more than 15%
• Total industry AUM declined by more than US$11.5 billion in October to US$1.76 trillion
• Asia ex-Japan managers continued their impressive 2012 performance by gaining 1.42% in October and 6.57% YTD
• Distressed debt funds were up for the 4th consecutive month in October and gained 1.66% – they are now up almost 7% since end-June and 10.18% as at end-October 2012
• CTA/managed futures funds registered the largest monthly loss since July 2008

Hedge funds delivered flat to marginally negative returns during October, ending their three month winning streak. October witnessed the Eurekahedge Hedge Fund Index down by 0.19% with the year-to-date (YTD) return for the index standing at 4.11% and the MSCI World Index dropping by 0.76%.

The trading environment was difficult and rather unpredictable due to sudden trend reversals across a variety of sectors. Most asset classes ended the month in negative territory while the fixed income and high yield space remained profitable. The BofA-ML High Yield Index was up 0.99% in October while the S&P Goldman Sachs Commodity Index dropped by 4.07% during the month. Most currencies declined during October versus the US dollar as market sentiment turned south and investors turned risk averse.

All regional mandates finished the month in positive territory while the performance of the composite Eurekahedge Hedge Fund Index was dragged down by globally investing funds. Hedge funds investing with a global mandate posted negative returns during the month and were down 1.34% on average. Negative returns were mostly driven by losses in commodities while increased risk aversion witnessed the global markets close lower. Global economic outlook dimmed considerably during the month with lower US earnings, another quarterly slowdown in Chinese growth, weak IMF global growth forecast and ongoing issues from the Euro zone debt crisis while a close race leading up to the US election further added to the uncertainty.

Amid the volatility and trend reversals, Asian hedge funds delivered a strong monthly performance ahead of other regions and the underlying markets. The Eurekahedge Asia ex-Japan Hedge Fund Index was up 1.42% in October as managers delivered substantial alpha amid mixed market returns. A number of managers reported gains from exposure to Chinese and Australian markets – the Han Seng gained 3.85% while the Shanghai Composite Index closed 0.83% lower. Australian shares were also up for the month with the ASX All Ordinaries finishing 3.38% higher, while Indian stocks declined by 1.47% in October.

Mizuho-Eurekahedge Asset Weighted Index

The asset weighted Mizuho-Eurekahedge Index saw an end to its four month winning streak in October with a 0.64% loss. The largest losses were driven by CTA/managed futures funds as the trading environment was unhelpful for trend followers. Additionally some of the larger global funds trading in volatility also witnessed some losses, offsetting the gains posted by special opportunity and emerging markets funds.

Looking at the performance on a regional basis, the Mizuho-Eurekahedge Emerging Markets Index posted the best performance in October gaining 0.66%, with the high yield sector continuing to post healthy gains while managers were also able to profit from rallies in some of the underlying markets. Returns among strategies were mixed for the month with arbitrage and event driven indices witnessing positive returns while the rest of the strategies were in negative territory.

Asset flows update

Hedge funds ended their winning run in October with flat-to-slightly-negative returns for the month. The Eurekahedge Hedge Fund Index was down 0.19% during the month bringing its October year-to-date (YTD) return to 4.11%. The month witnessed a difficult trading environment for hedge funds as underlying markets witnessed trend reversals across a variety of sectors. The MSCI World Index dropped by 0.76% in October.

Total assets under management (AUM) decreased by more than US$11 billion during the month, bringing the total size of the industry back to US$1.76 trillion. Revised figures based on late reporting funds for September showed that the industry had expanded by US$20 billion. Hedge funds posted losses of US$5.8 billion in October with mixed returns across the different strategies. Net asset flows for the month were also negative as investors withdrew US$5.7 billion from the industry.