Hedge funds closed the first quarter on a sour note, losing 0.35% according to the Eurekahedge April report, but February gains were still enough that the Eurekahedge Hedge Fund Index was up 0.87% for 1Q14, beating the MSCI World index which was up 0.67% last quarter. Hedge fund managers posted $970 million in preliminary performance-based losses last month, compared to $26.8 billion in performance gains in February. Net asset inflows were still positive but down from February, $8.09 billion versus $31.4 billion.

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Hedge fund: Long/short has most inflows, distressed debt has best returns in March

Long/short funds had their 16th straight month of net inflows and now have $704.6 billion in total assets under management (AUM), compared to the all-time high of $756 billion in December 2007 just ahead of the crisis and $2.07 trillion in total hedge fund AUM. Long/short funds had $400 million in performance-based losses last month, but many investors are still interested in the combination of exposure to equity markets and low correlation with major indexes that long-short funds can offer.

Distressed debt had the largest percentage gains last month, up 2.76%, with about $100 million in both performance based gains and net inflows. Hedge fund managers have benefited from buying fixed income derivatives from banks and from asset-backed securities whose underlying collateral is appreciating as the economy improves.

CTA/managed futures had a hard month, with $900 million in performance based losses and $1.6 billion in net outflows, for a negative 1.25% total change in assets. Multi-strategy funds gained a healthy $1.6 billion in net inflows on $100 million in performance-based gains while fixed income strategies gained $500 million in inflows on $200 million in performance gains.

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European fund inflows catching up to North America

Hedge funds with a European mandate had the strongest net inflows in March, picking up $4.7 billion in net allocations despite having $500 million in performance-based losses, making it a close second for total-year-to-date inflows. This pickup is yet another sign that many investors think the multiple expansion and steady price growth that the US saw last year could be headed to Europe now.

North American mandates had $1.8 billion in net inflows on $200 million in performance-based gains, and Asia ex-Japan had $1.2 billion in net inflows with $700 million in performance-based losses. Japan had $300 million in net inflows with $200 million in performance-based losses. Only Latin American funds saw a net outflow of funds, with investors pulling out $100 million while the funds earned $200 million in returns.

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