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Emerging Markets Funds Drive 2003 CSFB/Tremont Hedge Index Returns

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NEW YORK (–Emerging markets hedge fund managers had it good in 2003, good enough to beat both the Standard & Poor’s 500 Stock Index and the Dow Jones Industrial Index in a strong year for equity returns.

According to the Credit Suisse First Boston/Tremont* Hedge Fund Index, emerging markets managers returned 28.75% for the 12 months ended Dec. 31. The S&P 500 returned 28.68%, and the Dow gained 28.26% during the same time period.

Emerging markets returns in 2003 led all strategies in the CSFB/Tremont index and were the biggest contributor to the total index’s 15.44% return in 2003–a roughly five-fold improvement over the 3.04% full-year return the hedge fund index earned in 2002.

“The year-end story belongs to the emerging markets sector,” said Robert I. Schulman, co-chief executive of Tremont Capital Management Inc., in a statement. “The strategy provided consistent returns to investors all year.”

The “Reversal of Fortune” award for 2003 goes to dedicated short-bias managers. After ending 2002 up 18.14%, dedicated short-bias strategies in the CSFB/Tremont index returned a negative 32.59% in 2003. It was the only strategy to end the year with a negative return. Seven of the nine other style-based sector indexes finished 2003 with double-digit positive returns. The only sectors in single-digit positive return territory for 2003 were fixed-income arbitrage, which ended the year up 7.97% after a 0.8% return in December, and equity market neutral, which earned an annualized return in 2003 of 7.07% after posting a 0.93% return in December.

On a monthly basis, the CSFB/Tremont index ended the year on a high note, turning in a 1.95% return for December. It was the index’s third-highest monthly return of the year behind 2.71% in May and 1.96% in April.

Convertible arbitrage strategies earned 0.7% in December and finished 2003 with an annualized return of 12.9%.

Event-driven strategies returned 20.02% in 2003, led by distressed managers who earned 25.12% annualized through Dec. 31. Event-driven multi strategy returned 17.19% in 2003, and risk arbitrage earned 8.98%.

Global macro managers turned in 12-month 2003 performance of 17.99%, helped by returns that increased more than three-fold between the end of November and the end of December, from 0.55% in November to 1.86% in December.

Long/short equity funds earned 17.27% year-to-date through Dec. 31; managed futures returned 14.13% and multi-strategy funds earned 15.04%.

Managed futures funds were the best performers on a monthly basis for December, returning 5.42%.

From inception on Jan. 1, 1994 through the end of 2003, the CSFB/Tremont Hedge Fund Index has returned 186.89%. The index comprised 409 hedge funds as of Dec. 1.

Three hedge funds were dropped from the index late in the year. The Foyil Ukrainian Opportunity Fund, managed by Foyil Asset Management Ltd., Nassau, The Bahamas, liquidated its US$55 million in assets, according to a news release from CSFB/Tremont. The Bennett Restructuring Fund LP, managed by Bennett Management Corp., Stamford, Conn., and the Alps International Fund I LP, managed by Alps International Management Inc., Highland Park, Ill., both stopped reporting, according to the CSFB/Tremont news release.

Separately, the CSFB/Tremont Investable Index ended 2003 up 11.24% after posting a monthly return of 1.26% in December.

“It [the investable index] is performing in line with our expectations and generated a solid return for 2003,” said Oliver Schupp, president of Credit Suisse First Boston Tremont Index LLC, New York.

As in the broader hedge fund index, emerging markets strategies led the way in the investable index, posting an annualized return of 31.27% in 2003. Dedicated short-bias strategies, meanwhile, returned negative 31.27% last year.

Managed futures funds in the investable index also outperformed other sectors for the month of December, returning 4.68%. Managed futures managers in the investable index ended 2003 up 12.23%.

The CSFB/Tremont Investable Hedge Fund Index was launched in August with 60 funds in 10 sector styles picked from the larger CSFB/Tremont Hedge Fund Index Previous HedgeWorld Story. They generally are the six largest funds open to investment in each sector.

*Tremont Capital Management Inc., Rye, N.Y., is a strategic partner of and a minority investor in HedgeWorld.

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