Statistics released by BNY Mellon Asset Servicing show that pooledfund of hedge funds failed to achieve positive returns during the firstquarter of 2008.
Over this period the median return for these funds was -4.0, the lowest return that we have seen for these funds since BNY Mellon Asset Servicing started to measure pooled fund of hedge fund performance in 2003.
This is the third consecutive quarter that pooled fund of hedge funds failed to achieve a quarterly positive return.
Despite seeing a relatively weak performance during Q1 2008, pooled fundof hedge fund managers still outperformed other key investment sectorsincluding UK and Overseas Equity pooled funds, which returned -9.7% and -9.5% respectively. Pooled fund of hedge funds were however, outperformed by Property, UK Bonds and Cash.
“Along with one of the worst starts ever to a year for the equity markets, pooled funds of hedge funds also suffered from negative returns in January and March, producing the lowest quarterly return we have seen,” says Alan Wilcock, manager, Performance and Risk Analytics, BNY Mellon Asset Servicing.
Despite a shaky start to the year, some stronger results in earlierperiods meant that fund of hedge funds did make some small gains over a one year period with a median return of 1.7%. Pooled fund of hedge fund managers also outperformed key sectors over this period, in particular UK and Overseas Equity funds which returned -8.8% and -1.9% respectively. Over longer term periods, pooled fund of hedge fund results were even stronger, and over three and five years the median fund returned 7.5% p.a. and 8.2% p.a. respectively.
Over three years to 31 March 2008, pooled fund of hedge funds wereoutperformed by both UK and Overseas Equity pooled funds. BNY Mellon Asset Servicing’s analysis does however show that the volatility of returns over this period was significantly lower for fund of hedge fund managers. The standard deviation for pooled fund of hedge funds was 5.3% p.a., compared with 10.1% p.a. and 10.9% p.a. for UK and Overseas Equity funds. Over this period, pooled fund of hedge fund managers achieved an outperformance of 4.1% against UK Bond pooled fund managers, with broadly similar levels of risk; the median standard deviation of these funds was 4.6% p.a.
Each quarter, BNY Mellon Asset Servicing publishes results from itspooled fund of hedge funds universe which consists of multi-strategy funds of hedge funds. These offer a route into alternative investments for UK pension schemes and a means of generating returns, whilst reducing overall fund risk through diversification. Hedge fund strategies can be broadly classified as directional, event driven and non-directional. Directional strategies seek to forecast and exploit broad market trends, while event driven strategies seek to anticipate and exploit events such as mergers or corporate restructurings. Non-directional strategies generally seek to take advantage of pricing inefficiencies.
As of 31 March 2008, the average fund of hedge funds held 48.4% of itsassets in directional strategies, 13.1% in event driven strategies, 17.2% in non directional strategies and 21.4% in other strategies and cash. BNY Mellon Asset Servicing’s fund of hedge funds universe currently covers 19 separate funds with over pounds Sterling 4.9 billion in assets.