Hedge fund returns edge down in August

However, the report shows that hedge funds dropped in value by a smaller percentage than large caps funds (-0.57 percent) and the S&P 500 Total Return fund (-2.90 percent) in August. The performance of mid-size funds matched that of hedge funds for the month, while small cap funds edge down only slightly less (-.20 percent).

All but the S&P 500 Total Return fund, the report shows, fell in value for the most recent three-month period:

Hedge funds — portfolios of investments that use advanced strategies like leveraged long, short and derivative positions to achieve high rates of returns — are increasingly a component of private placement variable universal insurance and of variable annuities purchased by affluent investors. The funds are attractive because they generally don’t correlate in performance with stocks, bonds and mutual funds, and therefore offer opportunities to diversify portfolios and mitigate market risk.

Earlier this year, the products became a focus of the Financial Analysis (E) Working Group (FAWG) of the National Association of Insurance Commissioners, which is examining the increased interest among hedge fund managers and private equity firms in the life insurance industry.