Van Hedge Reports Small Index Loss For December

Investors Offshore, London

13 January 2003

According to Van Hedge Fund Advisors initial reports indicate that the average US hedge fund lost an estimated -0.3% net in December. “Hedge funds finished 2002 the way they started it: by demonstrating their ability to protect investors' capital through adverse market conditions,” commented George Van, Chairman of Van Hedge Advisors. The year-to-date result for the Van has yet to be announced but will be close to a break-even.

The December result reverses gains seen in November, when hedge funds produced their strongest returns so far this year, according to Van Hedge. The average US Hedge Fund gained 2.8% net of fees while the average Offshore Hedge Fund posted a 1.5% net gain. Those returns erased losses incurred earlier in 2002 as both the Average US Hedge Fund and the Average Offshore Hedge Fund broke even for the year to date through November.

Hedge funds benefited in November from the broad market rebound, but the real story is how they have performed for the year overall. A flat year-to-date return for hedge funds in the face of double-digit losses for stocks is a testament to these funds’ ability to preserve capital. However, 2002 isn’t an isolated case. According to VAN’s research, the Average US Hedge Fund has actually earned 7.8% net of fees from March 2000, when the bear market started, through November 2002. Over that same period, the S&P 500 and the Average Equity Mutual Fund produced losses of –35.2% and –32.2%, respectively.

The Van Hedge Fund Index, produced monthly, originally represented the industry's first benchmarking information based on a very large and representative sample. The Index shows returns monthly, by sector and style, for US hedge funds and Offshore funds separately, and also combined as a Global Index. The Company's database, which is used in construction of the Index, contains detailed information on over 3,400 hedge funds (2,000 US and 1,400 offshore). These funds represent about $182 billion of assets.

The Indexes are updated monthly based on returns received from contributing hedge funds. In addition to tracking net quarterly and/or net monthly returns over as many as 11 years on each fund, the database contains, for each fund, dozens of performance and non-performance variables which are intended to be useful to hedge fund investors. They include such characteristics as aggregate assets under management, extent of leverage, use of derivatives, and many others.

For 2001, the Van Hedge Index showed that the average US hedge fund earned 5.6% net while the Dow, S&P 500, and NASDAQ accumulated losses of –5.4%, –11.9%, and –20.8%, respectively. Offshore hedge funds, those domiciled outside the US, averaged an even stronger 7.0% net gain for the year.

The Van Hedge Fund Indices have been positive every year since their inception fourteen years ago in 1988. While few individual funds can claim such a track record, these indices show that, as an asset class, hedge funds have delivered superior returns in a variety of market conditions. In fact, since its 1988 inception, the Van US Hedge Fund Index has gained 954% net versus a 555% return for the S&P 500 over the same period.

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