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Bringing you news, views and analysis since 2013
Hans Schlaikier, Hedgeweek

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Hedge funds up 1.05 per cent in Q1… Hedge funds attract USD30bn in Q1…

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The Eurekahedge Hedge Fund Index was up 1.05 per cent in Q1 of this year even as hedge funds recorded another month of negative returns in March.

Net asset flows for Q1 stood at USD32.6bn, with North American and European fund managers leading the tables with USD17.7bn and USD13.6bn, respectively. Asia hedge funds were down 0.24 per cent, with managers focused on the Greater China region posting strong losses, declining by 3.47 per cent. Japan-focused hedge funds posted their third consecutive month of negative returns. These were down 0.84 per cent in March and 2.09 per cent in Q1.
 
Hedge funds finished the first quarter of the year with another month of negative returns, down 0.18 per cent in March as managers navigated through a choppy start to the year, data provider Eurekahedge reported.
 
However, strong returns posted by fund managers in the previous month saw them through with the Eurekahedge Hedge Fund Index up 1.05 per cent in the first quarter 2014, outperforming the MSCI World Index, which has gained 0.67 per cent over the same period.
North American and European fund managers showed stronger performance with returns of 2.50 per cent and 1.63 per cent, respectively, as global hedge funds were up 1.05 per cent in the quarter overall.
 
The industry attracted USUSD32.6 billion in net asset inflows over the period, with the main capital allocations going to North American managers (USD17.7 billion) and European managers (USD13.6 billion).
 
Global markets remained largely flat-to-negative during the month as better-than-expected U.S. jobs data and the reduction of the Fed’s monthly asset purchase program by another USD10 billion heightened concerns that US interest rates could rise faster than previously anticipated, Eurekahedge said. 
 
Most regional mandates ended the month in negative territory, with Eastern Europe & Russia investing hedge funds seeing the strongest decline – down 2.54 per cent as tensions between Russia and the West weighed on market sentiment. 
 
The Eurekahedge Japan Hedge Fund Index dropped 0.84 per cent, with long/short equities managers in the region posting losses as the Tokyo Topix declined 0.72 per cent during the month on the back of an appreciating yen. 
 
Asia ex-Japan investing hedge funds were down 0.24 per cent, with managers focused on the Greater China region posting strong losses, declining by 3.47 per cent. 
 
European managers were also down 0.34 per cent but managed to outperform underlying markets as the MSCI Europe Index declined 0.98 per cent during the month. 
 
North American managers posted gains of 0.45 per cent and outperformed the MSCI North America Index which was up 0.38 per cent during the month. 
 
The Eurekahedge Latin America Hedge Fund Index posted the strongest gains, up 1.53 per cent as Brazil’s Ibovespa climbing 7.13 per cent in March on the prospects of a more pro-market economic policy taking shape in the country, Eurekahedge said. 
 
Emerging market focused hedge funds also ended the month in positive territory, up 0.67 per cent.
 
Inflows into long-term funds in Europe reached EUR45.1 billion for February, almost twice as much as the volume seen the previous month, Lipper has announced.
 
In the latest Fund Flash report, which covers mutual fund sales, there was a significant increase in sales across several asset classes.
 
The most prominent of these was in bond funds, which saw EUR20.1 billion of net new money and compares to EUR5 billion in the January data.
 
Meanwhile equities also experienced strong performance in February. Inflows increased slightly from EUR12.9 billion in January to EUR14.3 billion in the latest data.
 
This all-round increased interest extended to mixed asset funds, which saw inflows of EUR9.1 billion in February, up from EUR7 billion in January.
 
Lipper also drew attention to the alternative assets part of the market, which had seen widespread negative performance in January. This turned around sharply in February with property funds, hedge fund alternatives and ‘other’ funds all seeing inflows.
 
The further increase of inflows was linked to a change in sentiment towards money market funds between the two analysis periods.
 
At a more granular level, the best performing sub-sectors were seen as asset allocation products (+EUR6.3 billion), European equities (+EUR6.3 billion) and Norwegian bond funds (+EUR3.8 billion).
 
Conversely, Asia Pacific ex Japan equity funds experienced EUR2.2 billion of outflows, while emerging market local currency bonds funds (-EUR2 billion), guaranteed funds (-EUR1.9 billion) and emerging market equities (-EUR1.8 billion) all experienced difficult months.
 
Hong Kong Jockey Club began making direct allocations to hedge funds, said Jacob Tsang, director of group treasury at the city’s only horse-racing operator, which has invested more than $1 billion in alternative assets reports Bloomberg.
 
It made its first two such allocations to Och-Ziff Capital Management Group LLC (OZM) and Millennium Management LLC recently, he said. In addition to controlling horse-racing in the city, the club operates authorized betting on football games and lotteries, according to its website.
 
“It is the first time the club goes direct and there is room to add more direct managers in the future,” Tsang said in an e-mail response to Bloomberg News questions. “This move signifies a shift in paradigm as the club moved forward to a more efficient way to deploy capital.”

The club is joining a growing rank of institutions that have directly allocated capital to hedge funds in recent years, bypassing funds of funds and the extra fees they charge to make such investments on their behalf. Two-thirds of institutions in a Deutsche Bank AG survey released in February invest directly with hedge funds without funds of funds, contributing to the concentration of assets in the largest managers.
 
“Multi-strategy funds have the advantage of being more nimble to deploy capital and there is no extra layer of fees,” Tsang said in the e-mail.
 
The club’s own investment team carried out the due diligence and picked the two managers without engaging an outside consultant, Tsang said. The club had invested in one of the managers through funds of funds before, he said, without identifying it.
 
The club had almost HKD9.5 billion (USD1.2 billion) of alternative investments at the end of June 2013, including those held by its retirement fund and charities trust, according to an annual report.
 
The club’s alternative investments include hedge funds, private equity and private real estate funds, according to its annual report.

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