Statistics released today by BNY Mellon Asset Servicing show that for the first time in 12 months, pooled fund of hedge funds failed to achieve a quarterly positive return. During the third quarter of 2007, the median return for pooled fund of hedge fund managers was
-0.8%. Despite this, these funds still outperformed other key investment sectors during the quarter, including UK Equity (-2.6%) and Property (-0.9%) pooled funds.
However, pooled fund of hedge fund performance was less favourable when compared against the cash index, which rose by 1.4% over the quarter and against other asset classes - UK Bond and UK Index Linked pooled funds achieved returns of 2.6% and 5.0% respectively.
Over a one-year period to 30 September 2007 pooled fund of hedge fund managers returned 12.3%, and outperformed against UK Equity, UK Bonds UK Index Linked and Property pooled funds.
Pooled fund of hedge funds were less successful over longer-term periods and over three years to 30 September 2007 achieved a median return of 9.3% p.a., compared with 16.2% p.a. for UK Equity pooled funds.
Commenting on the results, Daniel Hall, BNY Mellon Asset Servicing’s Publications and Statistics Manager, said: “Although UK Equity pooled funds outperformed relative to fund of hedge funds, this outperformance was achieved with a higher level of risk. The volatility of returns for pooled UK Equity funds, as measured by the median standard deviation, was 7.1% p.a. compared with only 4.6% p.a. for fund of hedge funds.”
Pooled fund of hedge funds were also outperformed by Overseas Equity pooled funds, who returned 17.4% p.a. over a three year period. However, the volatility of returns was significantly higher for Overseas Equity pooled funds as represented by a median standard deviation of 8.8% p.a.
Each quarter, BNY Mellon Asset Servicing publishes results from its pooled fund of hedge funds universe which consists of multi-strategy funds of hedge funds. These offer a route into alternative investments for UK pension schemes and a means of generating returns, whilst reducing overall fund risk through diversification. Hedge fund strategies can be broadly classified as directional, event driven and non-directional. Directional strategies seek to forecast and exploit broad market trends, while event driven strategies seek to anticipate and exploit events such as mergers or corporate restructurings. Non-directional strategies generally seek to take advantage of pricing inefficiencies.
As at 30 September 2007, the average fund of hedge funds held 39.7 % of its assets in directional strategies, 14.4% in event driven strategies, 28.2% in non directional strategies and 21.0% in other (unspecified) strategies and cash.
BNY Mellon Asset Servicing’s fund of hedge funds universe currently covers 17 separate funds with over £4.2 billion in assets.