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Hedge Funds Show Mixed Results In October

by Phillip Morton, Investors

11 November 2008

Hedge funds as measured by both the Greenwich Global Hedge Fund Index (GGHFI) and the Greenwich Composite Investable Index (GI2) declined marginally when compared with global equity returns during the month of October, according to Greenwich Alternative Investments.

The GGHFI and GI2 posted declines of -5.06% and -8.53% on the month, respectively, compared to global equity returns in the S&P 500 Total Return (-16.79%), MSCI World Equity (-19.05%), and FTSE 100 (-10.71%) equity indices.

Year-to-date, the GGHFI and the GI2 have shed -14.29% and -16.60%, respectively, while the S&P 500 Total Return, MSCI World Equity, and FTSE 100 Indices have lost -32.84%, -39.75%, and -32.21%, correspondingly. 36% of constituent funds in the GGHFI ended the month with gains.

"October's returns are the result of similar market conditions that impacted hedge funds in September. Although long/short equity funds were notably lower, other event driven and arbitrage funds that trade in more illiquid securities were also negatively affected due to redemptions and forced selling," notes Margaret Gilbert, managing director at Greenwich Alternative Investments.

Long/Short Equity managers experienced roughly half the losses of global equity markets during October, losing -7.88% on average. Value funds performed slightly better than growth oriented managers, but both declined, by -8.91% and -10.42%, respectively. Short Selling managers continued to take advantage of weak equity markets, producing their best month to date, with funds advancing 11.06%. Year-to-date, Short Selling funds have gained more than 25% and remain the best performing subsector of hedge fund strategies.

Market Neutral funds once again felt the effects of illiquid credit markets during the month of October, falling by -4.59%. Convertible Arbitrage managers suffered their worst month to date, losing -19.96% as redemptions and forced selling worsened an already unstable market for convertible bonds. Fixed Income and Other Arbitrage managers performed better, but still lost ground on the month, falling by -5.31% and -2.26%, respectively. Event Driven managers were dragged lower by distressed fund managers in particular, as they declined -8.63% on the month.

For the second month in a row, Directional Trading managers moved higher, capitalizing on volatile commodity markets. These funds were up on average by 4.88%. Futures managers turned in another strong month, advancing by 6.61%. Macro managers showed mixed results, with the average return down -0.30%.

Specialty Strategy managers were the weakest performing strategy group for the month of October, with funds losing -10.58% on average. Emerging Market funds suffered one of their worst months on record, losing -15.19% due to dramatic declines in BRIC (Brazil, Russia, India, China) equity indices.

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