Hedge Fund Focus

Hedge Funds Turn Positive for 2009, Redemptions Slow in March

Funds Return an Average of +1.84% in March, but Redemptions/Liquidations Cause Assets to Fall 1.01%

NEW YORK–(BUSINESS WIRE)–HedgeFund.net (HFN) releases March and Q1 2009 hedge fund asset flow and performance estimates. Following are highlights:

March/Q1 2009 Asset Flows:

Estimates for March indicate investor outflows continued, but the rate of redemptions decreased for the third straight month; an encouraging sign for the industry. Investor redemptions have slowed each month since outflows peaked in December 2008. The slowdown signals near term net redemptions may be coming to an end.

- Estimates show hedge fund assets fell an additional 1.01% in March 2009 to $1.724 trillion compared to reductions of 2.51% in February and 7.56% in January 2009.

- Net investor redemptions and liquidations in March were an estimated $23.97 billion compared to investor outflows of $41.14 billion in February and $165.25 billion in December.

- For Q1 2009, hedge fund assets fell an estimated 10.78%, or $208.36 billion. Redemptions accounted for a net $217.75 billion reduction and liquidations accounted for an estimated $12.61 billion while performance accounted for a net increase of $22.01 billion.

- The hedge fund industry has contracted 41% from the asset level peak in June 2008 to the current trough.

From a database perspective, fund of funds (FoFs) closures will account for approximately 49% of the April drop-off from HFN. As FoFs make up only 35% of the database’s 7,600 current fund products, this is a historically large percentage of FoFs leaving the database. FoFs historically account for nearly half of the allocations in the industry and were likely a major reason for the large and rapid redemptions in late 2008 and early 2009. The record FoF closures mean some of this pressure has left the market and further indicates net hedge fund redemptions may be near a bottom.

Last five months estimated hedge fund industry asset flow table.

Date             Total Assets             Total Flows

Quarterly %
Change

Change Due to
Performance

Net flows from
Redemptions/Allocations and
Launches/Liquidations
11/2008             $2,118.82             ($150.94)             -6.65%             ($29.08)             ($121.87)
12/2008             $1,932.40             ($186.43)             -8.80%             ($2.33)             ($184.09)
01/2009             $1,786.40             ($146.00)             -7.56%             $19.26             ($165.25)
02/2009             $1,741.64             ($44.76)             -2.51%             ($3.63)             ($41.14)
03/2009             $1,724.04             ($17.60)             -1.01%             $6.38             ($23.97)

All figures are single manager hedge fund assets only.

Hedge Fund Performance:

After two consecutive near record months of equity market outperformance, March hedge funds returns pushed aggregate industry performance positive for 2009. With 1,395 fund products reporting March performance, the HFN Hedge Fund Aggregate Average shows +1.84% for March and +0.52% for 2009 compared to -11.01% for the S&P 500 Total Return Index.

March performance was primarily driven by surging global equity markets, but the fact that long only strategies were well below broad equity indices is an indication managers maintained a cautious approach. The biggest drag on performance, apart from short-biased funds, were CTA/managed futures products focusing on foreign exchange markets. The announcement on March 18 that the U.S. Treasury would significantly expand its balance sheet resulted in sharp exchange rate movements which negatively impacted many of these managers.

Funds investing in emerging markets benefited most in March and the surge pushed the HFN Emerging Markets Average positive for the year. Regional performance was all positive in March, but remains mixed for the year. Funds investing in Russia were the best performing group in March, +6.49%, however the HFN Russia Average remains -1.23% in 2009. India focused funds were +4.71% in March, yet -4.57% YTD. Fund investing in China were +4.58% in March and are +4.00% YTD and trail only the HFN Australia Average for best performing country or region for funds in 2009. The HFN Australia Average was +4.52% in March and +5.09% YTD.

Positive benchmark performance for March includes:
Benchmark                       March                       Q1 2009
HFN Russia Average                 6.49%                 -1.23%
HFN Emerging Markets Average                 5.33%                 0.97%
HFN Long Only Average                 5.13%                 -1.58%
HFN India Average                 4.71%                 -4.57%
HFN China Average                 4.58%                 4.00%
HFN Healthcare Sector Average                 4.35%                 1.88%
HFN Technology Sector Average                 3.77%                 5.98%
HFN Long/Short Equity Average                 3.45%                 1.24%

Negative benchmark performance for March includes:
Benchmark                       March                       Q1 2009
HFN Short Bias Average                 -4.57%                 2.30%
HFN Distressed Average                 -1.75%                 -3.20%
HFN CTA/Managed Futures Average                 -1.18%                 -2.64%

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS

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