August was not an easy month for hedge funds. Uncertainty in the global economy stemming from taper talk at the Federal Reserve and war drums at the White House depressed equity returns and made it more difficult to put up returns. According to a new EurekaHedge report on hedge fund returns, the average hedge fund lost around 0.23 percent in August.

Hedge Funds

The new report takes a look at which sectors of the hedge fund world performed well. In general, the hedge fund world is looking reasonably healthy. More than 500 new funds had been launched by the end of July, and long/short equity funds had more than $600 billion in Assets Under Management for the first time since 208 in August.

Hedge fund outperformance

The average hedge fund return, according to the Eureka Hedge report, is in the negative, but the vehicles still outperformed the stock market in August. The world stock market, measured by the MSCI World Index, fell by more than 2.3 percent in August.

The best hedge fund performance came from distressed debt investors and Japan. Distressed debt funds had the best strategy so far in 2013, ending August up 9.77 percent for the year. Japanese hedge funds are up by 18.825 for 2013 so far, an incredible performance.

Returns in August across the world generally looked poor compared to those in July, with just Latin America managing to beat its July returns.  Returns in Europe were the most disappointing in the period, while North America remained almost entirely flat.

Asset drain

Hedge funds across the world lost about $6.3 billion in Assets Under Management in August according to the Eureka Hedge report. That leaves the size of the entire hedge fund industry at $1.9 trillion. Most of the decline in AUM came as a result of the poor performance of the funds, while net outflows came to just $1.6 billion in the period.

Hedge funds lost a very small small amount of their assets in August to investor uncertainty. Asset flows are still on a general upward trend as investors continue to see recovery in the economy, but there will be rock patches along the way. August brought Syria and taper talk. Those were ample grounds for rough going. September asset flows may be gentler, depending on the mood in the second half of the month.