The hedge fund industry performed well in the fourth quarter of 2009 with both positive returns and new money flowing into the funds, Fitch Ratings says.
The rating agency says that the broad HFRI composite index was up 2.7% in the quarter and up 20.0% for the full year. Overall, 2009 saw the best hedge fund performance for a decade, according to Fitch’s quarterly newsletter, published Friday. Funds also experienced the re-emergence of net new money inflows during the quarter, Fitchs says.
Fitch observes that 2009 was dominated by “top-down” macroeconomic positioning, whereas “bottom up”, individual asset selection and pure relative value trades remained on the sidelines “awaiting a clearer macroeconomic picture and more fundamentally driven market conditions”. In this environment, the most successful individual strategies were convertible bond arbitrage (which profited on both the equity and credit sides), emerging market equities and distressed credit.
While 2009 was a rebound year for hedge funds, Fitch notes that hedge fund managers generally expect that 2010 will prove more challenging.
“Most of the evident benefits from the massive stimulus packages — liquidity and sustained demand — have probably been realized already, sovereign risk is rising, the pulse of the economy and the profitability in certain sectors are still weak and several market segments are still subject to potential default risk. For these reasons, a return to fundamental analysis may well be on the cards for 2010,” says Olivier Fines, associate director in Fitch’s EMEA Fund and Asset Manager Rating group.
Fitch also notes that it remains to be seen if funds of hedge funds (FoHFs) can re-establish themselves with investors in the year ahead. FoHFs suffered more than single-manager hedge funds from clients leaving alternative investments in 2008, and this continued into 2009, it reports. “It so far remains unclear in early 2010 whether FoHFs can recover and demonstrate their legitimacy as the vehicle of choice for investors seeking to invest in the hedge fund universe,” it says, adding that FoHFs have generally lagged hedge fund performance throughout 2009.
That said, Fitch believes that the use of risk-adjusted performance figures and the observation that FoHF returns show a higher consistency over time, “both support the perspective that these vehicles are practical providers of stable exposure to alternative investments.”
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Hedge fund managers face challenge in 2010: Fitch
Unclear whether funds of hedge funds can re-establish favour with investors
- By: James Langton
- February 5, 2010 February 5, 2010
- 14:04