HFRI April decline pares YTD gains to +4.4 percent

Relative Value Arbitrage posts fifth consecutive monthly gain

Hedge funds posted a narrow decline to begin 2Q12, with the HFRI Fund Weighted Composite Index declining by -0.36 percent in April, according to data released today by HFR (Hedge Fund Research, Inc.), the leading provider of data, indices and analysis of the global hedge fund industry. The April decline follows a 1Q12 gain of +4.79 percent, the best 1Q performance since 2006, and concludes a month dominated by the resurgence of investor concern with regard to the European sovereign debt crisis and uncertainty surrounding the outcome and implications of European elections. Total hedge fund capital increased to a record level of $2.13 Trillion in 1Q12 on performance and continuing investor inflows.

Hedge fund performance by strategy was mixed for April, underscoring the varied themes and drivers of performance throughout the month. The HFRI Relative Value Arbitrage Index posted a gain of +0.21 percent, the fifth consecutive monthly gain for this index, with positive contributions from Fixed Income Arbitrage, Volatility Arbitrage and Asset Backed exposures. Equity Hedge was the weakest area of performance, posting a decline of -0.57 percent, the first monthly decline for this index in 2012, paring the YTD gain for the HFRI Equity Hedge Index to +6.33 percent. Macro strategies also posted a decline for April, with the HFRI Macro Index declining by -0.35 percent, as declines across Systematic (CTA) and Discretionary strategies only partially offset gains in Active Trading funds. The HFRI Event Driven Index posted a narrow decline of -0.16 percent, also the first monthly decline of 2012, as gains in Activist and Credit Arbitrage strategies were offset by losses in Distressed and Special Situations funds.

Funds of Hedge Funds posted a decline of -0.26 percent in April, also the first monthly decline of 2012, but the second consecutive month in which the HFRI FOF Index has outperformed the single managers in the HFRI Fund Weighted Composite Index. Despite modest redemptions in 1Q12, assets invested in hedge funds via FOF increased to $644 Billion as a result of positive performance in 1Q12.

“April hedge fund performance marked a transition from the equity beta driven gains in the first quarter to an environment more similar to the risk-averse environment which dominated 2011,” stated Kenneth J. Heinz, President of HFR. “While the transition has contributed to modest declines in Equity and Macro strategies in April, many funds which have maintained conservative positioning are now in the process of adjusting exposures through the current environment. Hedge fund gains throughout 2012 are likely to continue across a more diverse continuum of assets and strategies, with these complementing core and tactical equity markets exposures industry wide.”