Funds of Funds, like hedge funds, got off to a rough start to 2008, and the Eurekahedge Fund of Funds index had its worst month since inception, losing 2.9 %. This was due to the persistent turbulence across the underlying markets, which took a toll on hedge fund performance during the month and the average hedge fund registered a loss of 3.3% in January.
In terms of strategic mandates, most strategies finished the month in negative territory, owing to the overall weakness across the underlying markets. CTA multi-managers, however, were the notable exceptions, who returned a healthy 2.1% during the month, as underlying managers made healthy gains from shorts in the US dollar, and from some commodity-linked plays. Macro managers, who also partly profited from the same, also made some gains from hedge funds shorting equities, which more than offset losses from other allocations; multi-managers of the strategy were up a bare 0.2% for the month.
All other strategies recorded negative returns for the month. The Eurekahedge Long/Short Equities Fund of Funds index had its worst month since inception, and was down 5.5% in January, as underlying hedge funds were largely affected by the sharp downturn across global equities during the month. Event driven funds of funds were down 2.2% as underlying players in the strategy were adversely impacted by the notable slowdown in deal flow. The poor outcome of positions in the weak LBO market also adversely impacted their month's performance to some extent.
Arbitrage and relative value multi-managers lost 0.9% and 1.5% respectively through the month, as among other things, apart from a select number of high quality convertibles, the rest of the convertible market remained illiquid and traded at significant discounts, thereby taking a toll on underlying managers' performance. Fixed income managers finished the month flat (-0.1%), as some gains from hedge funds in the bond markets offset a portion of losses from other allocations, during the month.
In terms of regional mandates, North American multi-managers (-2.3%) registered the least negative returns, as hedge funds in the region made some gains in equity-shorts and currencies, among other things, which negated some of the losses from other allocations. European funds of funds were down 4.2%, posting their worst average loss in eight years, as about two-thirds of the hedge funds allocating to the region ended the month negative.
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