Hedge Funds Post Best Performance Since January 2006

By Tomoko Yamazaki

May 13 (Bloomberg) — Hedge funds returned an average 3.2 percent in April, the best performance in more than three years, and withdrawals slowed as a surge in global stocks helped managers investing in equities, according to Eurekahedge Pte.

The Eurekahedge Hedge Fund Index has returned 4.1 percent this year, according to a preliminary report by the research firm based on 42 percent of the more than 2000 funds it tracks globally. Last month’s gain was the biggest since the index rose 3.4 percent in January 2006.

Hedge funds benefited as global stocks surged 11 percent in April, as measured by the MSCI World Index of stocks in 23 developed nations. Fund managers are beating global benchmarks in 2009 after suffering the worst year on record in 2008, when Eurekahedge’s global index slid 12 percent, the most since the Singapore-based firm began tracking data in 2000.

“Hedge funds performing well during an equity market rally is expected,” said Kirby Daley, senior strategist at Newedge Group in Hong Kong. “To further regain the confidence of investors, we hope to see similar performance when the next round of asset deleveraging takes place.”

The Federal Reserve on April 29 said the “economic outlook has improved modestly” since March, while Japan’s industrial output rose for the first time in six months at twice the pace predicted by economists, adding to evidence the worst of the recession may be over.

Redemptions Ease

Net investor redemptions fell to $8.6 billion in April, based on the preliminary data, from $15.7 billion the previous month, according to Eurekahedge. Industry assets were $1.32 trillion at the end of April, a decline of $1.4 billion for the month. Hedge-fund assets peaked at $1.95 trillion in June 2008.

A separate report by Hedge Fund Research Inc. today showed Asia-focused hedge funds posted performance-based asset gain of $2.6 billion in the first quarter this year, compared with capital withdrawals of $9 billion.

Total assets invested in the Asian hedge fund industry fell to $65 billion at the end of first quarter, about $45 billion below the record at the end of 2007, the Chicago-based research firm said in an e-mailed statement.

“Hedge funds investing in Asia began the current period of consolidation earlier than the overall industry, but also now appear to be stabilizing earlier,” Kenneth J. Heinz, the president of Hedge Fund Research, said in the statement. “Global investors are likely to have strong interest in allocation to Asia-focused hedge funds in 2009.”

Asia Comeback?

Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether asset prices will rise or fall.

Eurekahedge’s index rose 1.4 percent in March, and April marked the first back-to-back gain this year.

All seven geographical mandates rose in April, with hedge funds investing in Eastern Europe and Russia the best-performers, surging 11 percent, Eurekahedge said. Those investing in Japan were the worst, gaining 1.9 percent because an activist fund posted losses, skewing the overall performance, the firm said.

All but one of nine Eurekahedge measures tracking different hedge-fund strategies rose. The index tracking so-called event- driven funds that invest in companies undergoing corporate events jumped 7.8 percent, the best performer, while the long- short equity funds, which bet on rising and falling stock prices, climbed 4.7 percent, the report shows.

Funds under the category of commodity trading advisers, which rely on computers to decide when to buy and sell securities, was the only one to fall, declining 0.4 percent, as moves in commodity and foreign exchange market hindered performance, Eurekahedge said.

Eurekahedge plans to release a full report on May 19.

To contact the reporter on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net

Last Updated: May 13, 2009 04:05 EDT