Key Takeaways
- • The Eurekahedge Hedge Fund Index declined 0.32% in August 2013 amid heightened global risk aversion, significantly outperforming the MSCI World Index, which fell 2.26% during the same period.
- • Hedge fund assets under management contracted by more than $6 billion in August 2013, reflecting investor redemptions and negative performance across the industry.
- • Distressed debt emerged as the best-performing hedge fund strategy in 2013 year-to-date, with gains of approximately 10% through the end of August, demonstrating strong relative resilience in the strategy.
- • Fund launch activity accelerated throughout 2013, with more than 500 new hedge funds launched during the year, indicating continued manager proliferation despite broader performance headwinds.
Summary
Hedge funds posted modest negative returns during August 2013 as elevated macroeconomic uncertainty and global risk aversion weighed on portfolio performance. The Eurekahedge Hedge Fund Index, a composite benchmark tracking diversified hedge fund strategies, declined 0.32% for the month. While this represented a loss, hedge funds substantially outperformed traditional equity markets—the MSCI World Index fell 2.26% in August, highlighting the relative defensive positioning and downside protection provided by alternative strategies during periods of market stress.
The challenging operating environment manifested across asset flows, with global hedge fund assets contracting by more than $6 billion during August as investors redeemed positions. This redemption activity reflected both negative performance and potential concerns regarding broader market volatility and policy uncertainty anticipated in the months ahead.
Within the hedge fund universe, performance divergence by strategy remained pronounced. Distressed debt investing demonstrated superior resilience as the best-performing strategy in 2013 year-to-date, posting approximately 10% gains through August. This outperformance positioned distressed debt strategies as clear leaders within the hedge fund complex, likely driven by elevated credit spreads, refinancing opportunities, and the manager expertise required to navigate complex corporate restructurings during a period of accommodative monetary policy.
Concurrent with performance challenges, hedge fund industry growth remained robust on the supply side. Fund launch activity gained momentum throughout 2013, with more than 500 new hedge funds established by September. This proliferation of new managers suggested that despite August's headwinds, investor demand for alternative investment vehicles and perceived alpha generation opportunities continued to support continued industry expansion.
The challenging operating environment manifested across asset flows, with global hedge fund assets contracting by more than $6 billion during August as investors redeemed positions. This redemption activity reflected both negative performance and potential concerns regarding broader market volatility and policy uncertainty anticipated in the months ahead.
Within the hedge fund universe, performance divergence by strategy remained pronounced. Distressed debt investing demonstrated superior resilience as the best-performing strategy in 2013 year-to-date, posting approximately 10% gains through August. This outperformance positioned distressed debt strategies as clear leaders within the hedge fund complex, likely driven by elevated credit spreads, refinancing opportunities, and the manager expertise required to navigate complex corporate restructurings during a period of accommodative monetary policy.
Concurrent with performance challenges, hedge fund industry growth remained robust on the supply side. Fund launch activity gained momentum throughout 2013, with more than 500 new hedge funds established by September. This proliferation of new managers suggested that despite August's headwinds, investor demand for alternative investment vehicles and perceived alpha generation opportunities continued to support continued industry expansion.
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