“Despite the volatile start to the year, investors look set to stay the course with hedge funds in the short term as fund searches continue to be issued for the year ahead,” says Preqin’s Quarterly Update on Hedge Fund performance for the first quarter of 2014. “The industry will be waiting to see how the second quarter of the year unfolds, not only in terms of performance, but also in how investors and fund managers react to the changing market conditions both in terms of new capital flowing into the asset class and what funds pick up these inflows.”

Event-driven strategies the star performer in Q1

According to Preqin, investors continued to express a preference for event-driven strategies during the quarter despite the comparative illiquidity of these investments. More investors gravitated to event-driven funds during Q1 compared to the previous quarter.

Event-driven justified this confidence by posting the best returns of 2.94% amongst all strategies during Q1, as shown in the graphic below:

1-strategy-wise-returns Hedge Fund

This strategy topped the returns chart in Q4 2013 as well, delivering 4.37% for that quarter.

By location, Europe is the best performer

At 3.21%, Europe earned the best return during Q1 followed by North America at 3.12%. Predictably, emerging markets were the laggards, delivering negative returns of 0.01% in the quarter – a result of the brutal currency and stock turmoil in January and February.

1a-geog-europe Hedge Fund

February the best month in the quarter

Though January and March proved losing months for hedge funds, the quarterly results were redeemed somewhat by good returns generated during the month of February, according to Preqin’s research note.

Significantly, February was the only month in Q1 to see all strategies deliver positive returns, observes the report.

February returns were 1.75% compared to (-0.25%) in January and (-0.26%) during March.

Hedge funds underperform the market indices

The overall performance of the hedge fund industry in Q1 largely reflected the movement of major equity markets, remark the Preqin analysts. “However, industry returns of 8.53% in the last year continue to show a significant lag compared to the public market’s price return of 19.32% over the same period,” they observe.

2-hedge-fund-vs-index Hedge Fund

The AUM pecking order

Preqin’s quarterly update also contains a useful listing of the top hedge fund managers ranked by Assets Under Management (AUM).

Here is a list of the top 20 global hedge fund managers by AUM:

3-aum-ranks Hedge Fund