hfr press release event


Hedge Fund Research, Inc.

May 2010 Hedge Fund Performance Worst Since November 2008

Losses Drop YTD 2010 Returns to +1.32%

CHICAGO, (June 7, 2010) – Hedge Fund performance was adversely impacted by the escalation of the Euro-centric sovereign bond crisis in May, with the HFRI Fund Weighted Composite Index declining by -2.26% for the month. May was the worst performance month since Nov 2008 and inclusive of the recent loss hedge funds have surrendered a large portion of early year gains, ending the first five months of 2010 with a gain of +1.32%. Hedge funds were broadly impacted by the sharp increase in risk aversion associated directly with the sovereign bond crisis escalation, as well as the effects this situation has had on global equity markets, corporate fixed income and currency markets.

Equity Hedge was the worst area of strategy performance, declining -3.7% in May, the worst month since Nov 2008. Global equity markets were broadly impacted by the increase in risk aversion, with weakest areas of performance in Fundamental Growth only partially offset by gains in Short Biased and Equity Market Neutral strategies.

Event Driven also posted sharp loss of -2.2% on increasing risk premiums in announced transactions and weakness in the corporate credit markets, with weakest areas of performance in Distressed and Shareholder Activist strategies.

Relative Value Arbitrage posted a loss of -0.98%, as losses in Convertible Arbitrage and Corporate credit strategies were only partially offset by gains in Volatility and Asset Backed strategies. May losses have pared 2010 gains for RVA, bringing YTD performance to +4%, but May also snaps a streak of 16 consecutive months of gains for Relative Value, the last monthly decline was December 2008.

Macro posted a loss of -0.94% as gains in currency focused funds were offset by losses in other Discretionary Macro strategies; Systematic Diversified Macro experienced a wide dispersion across constituents, with an average decline of 1% in May.


Single-Manager Hedge Funds

Special Situations

Activist

Credit Arbitrage

Distressed /Restructuring

Merger Arbitrage

Private Issue /Regulation D

Multi-Strategy

DiscretionaryThematic

Active Trading

Commodity

Agriculture

Energy

SystematicDiversified

Currency

Discretionary

Systematic

Multi-Strategy

Short Bias

Equity Market Neutral

FundamentalGrowth

FundamentalValue

QuantitativeDirectional

Sector

Energy / Basic Materials

Technology /Healthcare

Multi-Strategy

Equity Hedge MacroEvent-Driven

Metals

Multi

EnergyInfrastructure

Real Estate

Relative Value

Fixed Income – Asset Backed

Fixed Income – Convertible Arbitrage

Fixed Income – Corporate

Fixed Income – Sovereign

Volatility

Yield Alternatives

Multi-Strategy

Multi-Manager Funds

Fund of Funds

Conservative

Diversified

Market Defensive

Strategic

HFR Strategy Classification


HFR Regional Investment Focus Classification

America Asia Europe Other

North America

Latin America

Pan-American

Japan

Asia ex-Japan

Asia with Japan

Western Europe /UK

Russia /Eastern Europe

Northern Europe

Pan-European

Africa

Middle East

Global

Multiple Emerging Markets

Emerging Markets

Africa Latin America Middle EastMultiple

Emerging MarketsAsia ex-JapanRussia /

Eastern Europe


Estimated Growth of Assets / Net Asset Flow Hedge Fund Industry 1990 – Q1 2010

$58,370$95,720

$456,430

$625,554

$820,009

$972,608

$1,105,385

$1,464,526

$46,545

$126,474

$194,515

$13,756

$256,720

$1,868,419

$1,407,095

$367,560

$167,790$185,750

$167,360

$374,770

$539,060$490,580

$1,600,156

$1,667,906

$38,910

$73,585

$46,907$70,635

$99,436

$23,336

$55,340

$4,406$14,698

$91,431

$57,407

($1,141)

$27,861$8,463$36,918

($131,180)($154,447)

($500,000)

($250,000)

$0

$250,000

$500,000

$750,000

$1,000,000

$1,250,000

$1,500,000

$1,750,000

$2,000,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q12010

Ass

ets

($M

M)

Estimated Assets Net Asset Flow



TOP HEDGE FUND FIRMS ASSUME LEADERSHIP IN INDUSTRY RECOVERY

Capital inflows concentrated in industry’s largest firms;Investors continue to focus on structure, UCITS

CHICAGO, (April 20, 2010) – The hedge fund industry continued the recovery that began in 2009, with the HFRI Fund Weighted Composite Index gaining +2.56 percent for 1Q 2010, bringing the industry within two percent of its previous high watermark reached in October 2007, according to data released today by Hedge Fund Research (HFR), the leading provider of hedge fund industry data.

During the quarter, investors allocated $13.7 billion of new capital to the global hedge fund industry; this combined with a performance-based asset increase of $54 billion bringing total industry capital to $1.67 trillion.

All four main strategy areas experienced asset growth in the period, led by Event Driven strategies into which investors allocated $5.6 billion of new capital. Performance for the strategy was strong as well, with the HFRI Event Driven Index up +4.7 percent for the quarter, driven by significant contributions from Activist and Distressed sub-strategies. The smallest net inflow occurred in Macro strategies, with these receiving less than $1 billion of new capital. Macro funds posted only a modest gain of +0.2 percent for the quarter, with performance undermined by commodity weakness, falling volatility and a lack of persistent trends across asset classes. Equity Hedge and Relative Value strategies also posted both asset and performance gains for the quarter, with Relative Value completing 1Q10 with 15 consecutive months of performance gains.

Inflows concentrated in largest firmsWhile sixty percent of all funds experienced net inflows for the quarter, inflows were concentrated in the industry’s largest firms.

Investors allocated $14.9 billion to firms with greater than $5 billion in assets under management (AUM), while firms managing between $500 million and $5 billion experienced net outflows of $3.7 billion combined. The overall concentration of industry assets increased, with firms greater than $5 billion (5.1 percent of all funds) now managing over 62 percent of industry capital. Larger funds narrowly outperformed smaller funds during both 1Q10 and 2009, with the asset-weighted version of the HFRI Fund Weighted Composite Index gaining +2.8 percent and +20.3 in those periods, respectively.

The percent of funds which reached their respective high watermark in the trailing twelve months rose to 52.2 percent. In addition to an increased interest in allocating via separately managed accounts, investors continue to demonstrate interest in UCITS III complaint vehicles; HFR now tracks nearly 400 UCITS III fund products.

“In contrast to the environment of the last two years, the drivers of hedge fund performance have recently shifted to tightening corporate credit, declining equity market volatility, currency adjustments and rising sovereign credit risk,” said Ken Heinz, President of HFR. “While allocations reflect continuing trends in Event Driven & Arbitrage strategies, investors are also focusing on fund structure and transparency, as well as new opportunities presented in currency, commodity and fixed income markets.”


Distribution of Net Asset Flows by Firm AUM Tier Q1 2010

$814$1,181

($2,170)

($1,531)

$14,918

$545

($4,000)

($2,000)

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

< $100 Million $100 to $250Million

$250 to $500Million

$500M to $1Billion

$1 to $5 Billion > $5 Billion

Net

Ass

et F

low

s ($

MM

)



HEDGE FUND LIQUIDATIONS RISE DESPITE PERFORMANCE GAINS, FUND OF FUNDS CONSOLIDATION ACCELERATES

Industry leverage moderates from pre-crisis levels; Incentive fees continue to decline

CHICAGO, (June 8, 2010) – After falling steadily for four quarters, hedge fund liquidations rose again in the first quarter of 2010 with 240 funds closing during the period, according to the HFR Market Microstructure Industry Report released today by Hedge Fund Research (HFR), the leading provider of hedge fund industry data and analysis. Liquidations were disproportionately skewed towards Fund of Funds (FOF), with 102 FOF closing in the quarter, this marks the seventh consecutive quarter in which FOF liquidations have exceeded new launches.

Aggregated industry leverage employed by hedge funds has continued to moderate relative to five years ago, with seventy percent of all funds, which manage eighty-three percent of industry capital, utilizing some form of leverage. In the HFR Special Report: Hedge Fund Leverage, Relative Value Arbitrage and Macro strategies commonly employ higher levels of leverage than Event Driven and Equity Hedge strategies. Standard leverage metrics vary broadly across the hedge fund industry, with over half of all funds typically employing between 1 and 2 times investment capital. Larger funds typically exhibit a greater usage of leverage, with nearly 30 percent of all funds greater than $1 billion employing leverage in excess of two times their investment capital.

Incentive Fees continue to fall as fund performance dispersion declinesIndicative of continued pressure from investors for more attractive investment terms, average incentive fees

declined by 8 basis points to 19.12 percent in 1Q 2010, the steepest drop since 2Q 2008, although average management fees were unchanged for the quarter at 1.58 percent. Performance dispersion between the best and worst deciles of performance narrowed in the less volatile period, with the top decile of all hedge funds returning an average of +15.2 percent, while the bottom decile lost an average of -8.6 percent.

“Both investors and fund managers are continuing to exhibit a heightened sensitivity to leverage and risk, even with the benefit of the performance recovery from 2009,” said Ken Heinz, President of HFR. “Managers are employing lower levels of leverage in response to higher realized asset volatility and higher costs of obtaining leverage, as well as investor preference for a less volatile return profile.”


Estimated Number of Funds Launched/Liquidated1996 – Q1 2010

784

254

(1,023)

(240)

507

261

450348 328

673

1,087 1,094

1,435

2,073

1,518

1,197

659

(109)(52)

(115)(57) (71) (92)

(162) (176)

(296)

(848)(717)

(563)

(1,471)

(2,000)

(1,500)

(1,000)

(500)

0

500

1,000

1,500

2,000

2,500

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1 2010

Nu

mb

er o

f F

un

ds

Launches Liquidations


Average Incentive Fee per StrategyChanges from Q1 2008 – Q1 2010

19

.13

19

.46

19

.80

19

.37

19

.34

8.0

5

19

.01

19

.39

19

.66

18

.92

19

.15

7.9

4

19

.07

19

.48

19

.80

19

.18

19

.27

7.7

5

19

.08

19

.50

19

.77

19

.07

19

.25

7.2

5

19

.04

19

.38

19

.93

18

.88

19

.22

6.5

0

19

.02

19

.15

19

.95

18

.79

19

.18

6.7

9

19

.14

19

.18

19

.92

18

.63

19

.21

7.3

8

19

.14

19

.17

19

.94

18

.49

19

.20

6.9

4

18

.97

19

.33

19

.81

18

.53

19

.12

7.3

3

0.00

5.00

10.00

15.00

20.00

25.00

Equity Hedge Event-Driven Macro Relative Value All Single-MgrStrategies

Fund of Funds

Ince

nti

ve

Fee

%

Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010


HFRI Fund Weighted Composite AnalysisDispersion of Average Fund Performance by Deciles

12-Months Rolling ending Q1 2010

60.60

39.20

27.91

19.02

12.22

6.542.23

(1.82)

(8.92)

79.64

49.06

32.57

23.03

15.00

9.25

4.370.25

(4.48)

(20.10)

124.48

114.15

54.85

36.01

25.39

17.03

10.74

5.511.26

(3.18)

(16.62)

(40.00)

(20.00)

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

1st Decile 2nd Decile 3rd Decile 4th Decile 5th Decile 6th Decile 7th Decile 8th Decile 9th Decile 10th Decile

Retu

rn

%

Top 25% Decile ROR Decile Average ROR Bottom 25% Decile ROR


Estimated Distribution of Leverage Number of Single-Manager Funds

Q1 2010

Employs Leverage70.4%

Typically Does Not Employ Leverage

29.6%


Estimated Distribution of Leverage: Standard Leverage (Normalized to 100%)Number of Single-Manager Funds

Q1 2005 vs. Q1 2010

30.2%

34.9%

69.8%

65.1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2005 1Q 2010 1Q

Typically Does Not Employ Leverage Employs Leverage


Estimated Distribution of Leverage: Standard LeverageNumber of Funds vs. Industry AUM

Q1 2010

34.9%

53.8%

9.8%

1.3%0.2%

0%

10%

20%

30%

40%

50%

60%

70%

Typically Does Not EmployLeverage

1-2X 2-5X 5-10X >10X

20.8%

40.9%

27.2%

11.0%

0.1%0%

10%

20%

30%

40%

50%

60%

70%

Typically Does Not EmployLeverage

1-2X 2-5X 5-10X >10X

Number of Funds AUM of Funds

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