Hedge funds had marginal losses in November as the investment environment stayed tough, while performance-based losses and outflows wiped $10 billion off the size of the industry, reports Eurekahedge.

Declining sentiment
Hedge funds ended November with marginal losses as the investment environment continued to be unpredictable. The Eurekahedge Hedge Fund Index was down 0.87% during the month as the global markets experienced large declines. The November year-to-date figure fell to a negative 3.78%.

Risk aversion remained high during the month with the eurozone debt issues continuing to dominate investor sentiment. Although November started with gains in equity markets, mid-month trend reversals and a strong rally at the end of the month made it a tough investment environment.

The total asset size of the industry declined by nearly $10 billion with performance-based losses accounting for $500 million and net outflows of $9.4 billion.

Currencies falls drive losses
The Eurekahedge Arbitrage Hedge Fund Index was flat to slightly negative in November with a marginal return of minus 0.06%. Losses were driven by a few globally investing arbitrage funds employing currency trades. Hedge funds using volatility arbitrage posted the strongest profits, up over 2% on average.

The Eurekahedge CTA/Managed Futures Hedge Fund Index was up 0.15% in November as sharp reversals in equity indexes and major currencies negated the gains made early in the month. Short-term systematic strategies were flat, posting gains from shorting bond futures. Other managers locked in gains going long on Australian 90-day interest rate futures. North American investing CTAs made solid gains of 2.10% last month. The Eurekahedge Distressed Debt Hedge Fund Index was down 1.45% by the end of November.

Regional splits
Relative value hedge funds delivered flat to slightly negative performance for the month. The Eurekahedge Relative Value Hedge Fund Index posted a return of 0.17% in November. North American relative value managers posted the best returns for the month, with gains of 0.53%. Market neutral trades in fixed income yielded the best returns, averaging more than 1.4%. Asia ex-Japan relative value funds suffered significant losses in the second half of 2011.

Multi-strategy returned to negative territory, down 0.52% in November. Japanese multi-strategy managers posted net gains on average for the month thanks to favourable market conditions and a stronger yen. Japanese multi-strategy hedge funds were up 6.19% year-to-date to end of November and are on track for their third consecutive year of net annual gains.

Japan event driven managers lead on performance
Event driven hedge funds returned a negative 1.30% for November. However, Japanese event driven managers delivered a modest return of 0.28% for the month. This ranks Japanese event driven hedge funds as the best performing sector for 2011 to end of November with a 3.45% gain.

The value of corporate merger and acquisition announced in 2011 through November was $2.4 trillion, 1.4% more than the value of deals struck through November 2010. After July 2011 corporate activity slowed considerably due to the high volatility in financial markets and the uncertain outlook around the European debt crisis.

Fixed income hedge funds dropped 0.68% for November, triggered by an uncertain outlook over the ability and willingness of eurozone sovereign issuers to service their bond holders.