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Hedge funds have record month in May

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May was the best month in almost a decade for hedge funds, with the composite Eurekahedge Hedge Fund Index up 5.2 per cent and the industry seeing net inflows (USD1.5bn) for the first t

May was the best month in almost a decade for hedge funds, with the composite Eurekahedge Hedge Fund Index up 5.2 per cent and the industry seeing net inflows (USD1.5bn) for the first time in ten months.

The month’s gains were realised on the back of a continued surge in the underlying equity markets, which rallied strongly for the third straight month owing to better than expected macroeconomic data coupled with highly attractive valuations across most regions.

Hedge fund’s exposure to the currency and commodity markets also proved largely rewarding, as managers exploited the weakening of the US dollar against most other major currencies, and the notable increase in commodity prices – the CRB Index rose a record 14 per cent – in May. 

Hedge funds are up 9.2 per cent year-to-date, while the S&P 500 was up 1.8 per cent as at end-May 2009

Early reporting funds suggest net inflows for the first time in ten months for May: USD3.2bn of inflows more than offset redemptions of USD1.7bn.

Hedge funds assets were up USD5bn or 0.4 per cent in May, as small funds (<USD100m in assets) outperformed large funds (> USD500m in assets) by over three per cent.
 
In terms of regional investment mandates, Asian managers had their best month in ten years, returning nine per cent on average, as most regional equity markets turned in double digit gains during May.

This is also mirrored in the broader Eurekahedge Emerging Markets Hedge Fund Index, which posted a record 8.5 per cent return for the month.

Hedge funds investing in other emerging markets such as Latin America and Eastern Europe including Russia also had strong months (up 4.9 per cent and 5.2 per cent respectively), as regional equity markets were fuelled by a sharp upturn in crude oil prices and stronger risk appetites. 

Allocations to Europe and North America turned in subdued gains compared to other regions, averaging 2.4 per cent and 3.5 per cent respectively, as equity market neutral and fixed income plays turned in muted gains amid rallying equity markets and a  downturn in government bonds.
 
All strategic mandates were up in excess of two per cent in May, with event driven and long/short managers up 7.2 per cent and 6.7 per cent respectively, both largely benefiting from upward movements in the equity markets.

Event driven managers also benefited, to some extent, from another strong month in the high yield markets which were up six per cent through May, amid stronger risk appetites and tighter credit spreads.

Among other strategies, multi-strategy managers were up 4.8 per cent on average, benefiting from favourable movements across most asset classes – namely equities, FX and commodity markets, while CTA and macro managers returned 3.7 per cent and 3.2 per cent during the month, with short term systematic trades proving rewarding.

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