FoHF assets grow due to positive returns and investor confidence

After a year of continuous net outflows, total hedge fund assets rose 5.8% in May with 1.0% attributable to investor net inflows and 4.8% attributable to returns, according to hedgefund.net data published in Standard & Poor's Fund Services latest sector update.

The data is based on returns from fund of hedge funds (FoHFs) rated by S&P Fund Services. It estimates returns in the second quarter 2009 have been around 5%, with 6% year to date according to S&P Fund Services lead analyst Randal Goldsmith. He said across the underlying hedge fund strategies each individual strategy delivered a positive return in May apart from short biased.

Distressed strategies had their best month for over 18 years, returning 6.1%. Emerging market hedge fund performance was the strongest strategy in May up 10.2%, among the five best months on record for the strategy.

After reducing net and gross exposures to historically low levels, FoHFs gross exposures remain low although net exposures within long-short equity hedge allocations are moving up significantly said Goldsmith.

Investors quick to respond to disappointing returns have been much slower to react to improving performance. "We think the primary reason for this is investor disappointment over the management of portfolio liquidity by hedge funds and FoHFs," concluded Goldsmith.