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Event-driven hedge funds are back in the black

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Hedge funds have been taking a beating of late. As reported in this space on Sept. 9, hedge funds fell an average of -0.23 percent in value in August. The downward trend, however, is not universal.

A new report from Preqin, a provider of data and information on private equity, real estate, hedge funds and infrastructure asset classes, reveals that hedge funds tied to “event-driven” investment strategies — those that exploit pricing inefficiencies that may occur before or after a corporate event, such as a merger acquisition — were alone among hedge funds in producing positive returns in August (+0.49 percent). All other single-manager hedge fund strategies fell into the negative, with a benchmark return for all single-manager hedge funds of -0.08 percent in August, the report shows.

The research, based on Preqin’s Hedge Fund Analyst database, also reveals that event-driven hedge funds have the highest year-to-date performance for single-manager hedge funds, with net returns of 9.40 percent. The funds have also outperformed all other single-manager strategies over the last 12

months and on a three- and five-year annualized basis.

The Preqin research also reveals the following:

  • Long/short hedge funds were the top performing strategy in July, with average net returns of 2.16 percent, but failed to match this in August, posting average net returns of -0.04 percent.
  • Commodity trading advisors (CTAs) are now on a 4-month losing streak after posting average net returns of -0.56 percent in August, with year-to-date performance of -2.54 percent.
  • Macro strategy funds of hedge funds have year-to-date net returns of 3.45 percent, while macro strategy single-manager hedge funds have only managed net returns of 0.27 percent this year.
  • Long/short hedge funds remain the most favored strategy among investors, with 58 percent of investors in August planning to make new investments in long/short funds over the next 12 months.
  • Sixteen percent of investors plan to invest in event-driven hedge funds.
  • European hedge funds avoided negative returns in August, posting average net returns of 0.19 percent, while North American hedge funds broke even.
  • The Asia-Pacific remains the top performing region over the last 12 months, with Asia-Pacific-focused hedge funds producing net returns of 16.64 percent over the past year, despite August returns of -0.33 percent.
  • Japanese Yen-denominated hedge funds have produced year-to-date returns of 17.14 percent and have an average net return of 24.79 percent for the past 12 months.