Hedge Funds Have Worst First Quarter Since 2008

Despite the Preqin All Hedge Fund Strategies benchmark being up 1.23% year to date, hedge funds have comparatively had their worst first quarter in terms of performance since 2008, according to Preqin.

As opposed to the slight gains in this year’s first quarter, in 2012 and 2013 hedge funds returned 6.07% and 3.76% respectively in the first quarter. This quarter’s number was buoyed by the 1.75% returns in February, while January posted losses of 0.25% and March lost 0.23%.

Event driven was the best performing strategy in the first quarter of the year, with this strategy’s benchmark posting average returns of 2.94%. This performance reflected an increased investor interest in the strategy, with 21% of investor searches initiated in the first quarter including an event driven component, a 4% increase from Q4 2013.

“Event driven strategies continue to lead the way, with more investors willing to take on the illiquidity premium of investing in these strategies in Q1 2014 than in Q4 2013. Fund managers are predicting that developed markets will outperform emerging markets in 2014, and the first quarter results support this outlook; developed markets-focused funds posted returns of 2.21% compared to the 0.01% loss suffered by emerging markets funds. 
Despite the volatile start to the year, investors look set to stay the course with hedge funds in the short term as fund searches continue to be issued for the year ahead. The industry will be waiting to see how the second quarter of the year unfolds, not only in terms of performance, but also in how investors and fund managers react to the changing market conditions both in terms of new capital flowing into the asset class, and what funds pick up these inflows,” says 
Amy Bensted, head of hedge funds products at Preqin.

The better performance of developed markets-focused funds coincides with the proportion of fund launches increasing by 2% for Europe- and North America- focused funds over the last quarter.