Funds of hedge funds had a positive quarter in May following a year of continuous outflows, according to data from Standard & Poor’s (S&P) Fund Services.
Total hedge fund assets rose 5.8% during the month, of which 1% was owing to net inflows. The remaining 4.8% was owing to returns, S&P says.
Randal Goldsmith, the lead analyst, said in a statement: “Based on returns achieved by fund of hedge funds rated by S&P Fund Services, we estimate that returns in the second quarter have been around 5%, with 6% achieved over the year-to-date.”
Every hedge fund strategy delivered a positive return in May with the exception of short-biased strategies. The strongest return came from emerging market hedge funds, which delivered 10.2% in one of the best five months on record. Distressed strategies had their best month in more than 18 years, returning 6.1%.
Net exposures among long/short equity hedge allocations have moved up significantly from historically low levels in March, Goldsmith said.
“We think the primary reason for this is investor disappointment over the management of portfolio liquidity by hedge funds and fund of hedge funds,” he added.
During the past 12 months, the vast majority of rating actions on these vehicles have been negative. S&P has removed ratings from over 10% of fund of hedge funds owing to poor liquidity management or weaknesses in their risk management processes related to exposure to Madoff strategies.
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