Hedge Funds Witness Muted Start To 2014 As Event Driven Dominates

Hedge funds returns-by-strategy

The overall hedge fund benchmark witnessed positive returns only in February, while January and March posted disappointing performance, according to Preqin’s quarterly update on hedge funds for first quarter 2014.

Event driven strategies funds continued to clock impressive returns, adding 2.77% in Q1 2014, while enhanced activity witnessed in the fund of hedge funds sector at the start of 2014.

Positive but muted start to 2014

In its April 2014 report titled “Hedge Fund Spotlight”, Preqin points out single-manager hedge fund returns for the first three months of the year witnessed 1.23% net returns, which lagged Q4 2013 returns by over two-and-a-half percentage points. The performance of managed futures and CTAs dipped back into negative territory, while funds of hedge funds and UCITS hedge funds ended the first quarter in positive territory, though they have underperformed compared to the same period last year and the previous quarter. The following graph captures the net returns of hedge funds by structure during the first quarter of 2014:

Strong performance by event driven funds

As can be deduced from the following table, February was the only month in Q1 to witness all strategies deliver positive returns, while the average event driven and relative value funds avoided losses during the first quarter:

Hedge funds returns by strategy

The Preqin’s report highlights that event driven strategies funds continue to clock impressive returns, adding 2.77% in Q1 2014, thereby making it the best performing strategy tracked by Preqin’s Hedge Fund Analyst.

The report further points out that investors are responding to this prolonged period of strong performance of event driven funds with more investors willing to take on the illiquidity premium of investing in these strategies in Q1 2014 than in Q4 2013.

Outperformance by developed markets

Keeping faith with the earlier prediction, funds with a developed-market focus added gains of 2.32% in the first quarter as compared to the -0.74% clocked by the emerging-market focused funds. The following graph captures the cumulative net returns of hedge funds by geographic focus:

Return by geographic focus

Echoing the strong performance by the developed-market focus funds, in the first quarter of 2013, 73% of new hedge funds were launched by North America-based markets. The following graph highlights new fund launches by geographic location:

New fund launches

The Preqin’s report also notes there has been an increase in activity in the fund of hedge funds sector at the start of 2014.

The following table captures the summary of preliminary March 2014 performance benchmarks:

Summary of March 2014 benchmarks

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About the Author

Mani is a Senior Financial Consultant. He has worked in Senior Management role in large banking, financial and information technology organizations. He has provided solutions for major banking and securities firms across the globe in the area of retail, corporate and investment banking. He holds MBA (Finance) and Professional Management Accounting Qualifications. His hobbies are tracking global financial developments and watching sports

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