Hedge Funds Record First Quarterly Loss Since Q2 2012

CTAs emerge from coma, with a commanding 5.5% Q3 return

Hedge funds stumbled into the red during the third quarter, posting a loss of 0.4%, according to alternatives data provider Preqin.

It was the sector’s first negative quarter since Q2 2012.

Year-to-date returns were down 3.3%, compared with a 7.8% positive return for the same period last year.

Long/short funds lost 0.9% for the quarter and event-driven funds 2.3%.

In contrast, macro strategy funds picked up 0.5% in Q3, taking their year-to-date return to 2.5%, compared with 1.5% over the same 2013 period.

CTAs, climbing back from a dreary losing stretch, were Q3’s star performers, up 5.5%. This was their best quarterly performance since Q4 2010, and brought their year-to-date return to 7.1%.

Preqin noted that North America- and emerging-markets-focused funds were hit hardest by the turbulent Q3, which affected all regions globally. North America-focused funds lost 1.4%, though the region remained the best performer over 12 months, up 9.1%.

Q3 Hedge Fund Rollouts

Although long/short and event-driven funds performed poorly in Q3, fund managers still saw opportunities in these strategies, Preqin reported.

Long/short fund rollouts accounted for 55% of all funds launches in Q3, up from 48% in Q2. Event-driven funds represented 17% of launches, up from 10% in the earlier quarter.

Despite their positive Q3 performance, macro strategy funds made up just 13% of launches, their lowest level since Q3 2007 and down from 24% in Q2. However, appetite for macro funds was picking up, according to Preqin, with searches initiated by investors increasing to 28%, vs. 19% in Q2.

North America-based managers accounted for 83% of hedge fund launches in Q3, up from 66% in the previous quarter.

The region itself was proving attractive to managers, with 29% of launches mainly targeting North America, compared with 21% in Q2.

In contrast, launches of funds that employed a global investment focus fell by 13 percentage points from Q2 to 46% of all launches.

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Check out A Death Rattle for ‘2-and-20’ in Private Investing on ThinkAdvisor.

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