Poor performance may spark strategy change as investors look to developed markets
Hedge funds have suffered their worst first quarter since the beginning of the financial crisis, heralding likely changes in future strategy.
The Preqin All Hedge Fund Strategies benchmark gained 1.2 percent in the first three months of the year, the worst result since the first quarter of 2008 when the global financial crisis started, according to Preqin, the UK-based alternative assets analysis firm.
Hedge funds have been hit by increased pessimism over the outlook of emerging markets assets ‒ where many hedge funds have placed large portions of their investments ‒ as well as increased market volatility worldwide, a sharp reversal in the value of the yen, steep declines in Japanese stocks and political strife in Ukraine.
Hedge funds posted losses on average in January and March while February’s gain of 1.75 percent kept them overall in positive territory for the quarter. The performance compares dismally with a gain of 6.1 percent in the first quarter of last year and of 3.8 percent in the first quarter of 2013. In both 2012 and 2013, the first quarter marked the most profitable portion of the year for hedge funds.
Hedge funds focused on the developed markets of Europe posted gains of 3.2 percent in the first quarter, followed by 3.1 percent gains in funds focused on North America. Asia-focused funds gained on average 0.7 percent while those with an emerging markets focus declined 0.01 percent.
‘Despite the volatile start to the year, investors look set to stay the course with hedge funds in the short term as fund searches continue to be issued for the year ahead,’ says Amy Bensted, Preqin’s head of hedge fund products, in a press release. ‘The industry will be waiting to see how the second quarter of the year unfolds, not only in terms of performance, but also in how investors and fund managers react to the changing market conditions.’
