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The Eurekahedge Fund of Funds index registered modest returns (0.5%) for the month of December, bringing its gains for 2007 up to 10.1%. Multi-managers turned in positive returns for the month despite a bit of volatility across asset classes.

The highest gainers were CTAs (1.2%), who benefited from the surge in oil and precious metal prices. Relative value managers returned 0.9%, as underlying managers made decent gains from short-term trading. Long/short focused multi-managers returned 0.8%, benefiting from the gains of long/short hedge funds - which made some decent gains from both long and short positions, during the month. Arbitrage fund of funds (0.1%) finished the month flat, as the lower volatility (as compared to past months) posed few opportunities for arbitrageurs. Macro managers (0.3%) returned modest gains, while those allocating to currencies and interest rates, finished flat to negative.

Distressed debt (-0.1%) and event driven (-0.2%) managers finished the month flat, and fixed income players (-0.4%) recorded modest losses. The drying up of liquidity in the M&A and high yield markets pulled down the performance of underlying distressed debt and event driven managers, while the weak performance of bonds adversely impacted fixed income hedge funds and fund of funds managers.

In terms of regional mandates, emerging market focused managers (2.1%) fared impressively this December, largely benefiting from their allocations to funds (particularly long/short) invested across Eastern Europe, Latin America and to some extent, Asia. North American managers returned 0.5%, as underlying hedge funds made decent gains from shorts in equities and from commodity-linked trades, during the month.

Asian fund of funds finished the month up 0.4%; appreciation in some regional currencies against the dollar (the Chinese yuan appreciated by 1.3% against the dollar, for instance), among other things, afforded regional hedge funds with some profitable opportunities. However, Japan-focused hedge funds suffered significant losses (-1.3%), impacting the performance of Asian multi-managers to some extent. European funds finished the month flat (0.1%), as underlying hedge funds(0.2%), owing to weak global economic data coupled with a round of rate-cuts in the UK, finished the month flat.

Our outlook for hedge fund (and therefore, fund of fund) performance in 2008 remains positive. The volatile trading environment ensures a significant opportunity-set of mis-priced assets.

For the latest December 2007 returns and 2007 YTD returns for the Eurekahedge hedge fund and fund of funds indices, visit www.eurekahedge.com/indices or contact editor@eurekahedge.com to comment on this report.

Rajeev Baddepudi is hedge fund analyst with Eurekahedge in Singapore

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