The Third Quarter Could Be Decisive For The Hedge Fund Industry

Hedge fund quarterly returns

In June, the hedge fund industry posted negative monthly returns – losing 1.52% – for the first time in over a year.

Industry-wide performance last month was so bad that hedge funds barely managed to eke out positive returns – only 0.14% – in the second quarter.

Meanwhile, the S&P 500 was up 2.36% in Q2, marking a continued trend of hedge fund underperformance versus the broader market.

“The third quarter of this year could prove to be a decisive one for the industry; investors are still hungry for strong performance following weak returns in 2011 and the flat to negative performance in Q2 has dampened the year to date success of hedge funds,” says research consultancy Preqin in its latest quarterly report. “Investors and fund managers alike will be waiting to see improvement in July’s figures in the hope that the industry can recover from the disappointment in June.”

The Preqin report offers some colour on what’s going on in the industry right now:

Three hundred funds have been launched so far in 2013. In Q2 2013, we have witnessed further growth in the proportion of event driven strategies coming into the market, as fund managers continue to see opportunities in this space. Conversely, launches in the CTA and macro strategy sector, the two worst performing strategies over 2013 so far, continue to slow.

Over 250 investors initiated searches for new funds in Q2. Long/short equity funds are most commonly being sought by institutional investors and we have also seen an increase in investors looking to invest through separately managed accounts to take advantage of the additional transparency, liquidity and control these structures can offer.

The table below shows recent monthly and quarterly performance figures for various hedge funds grouped by strategy.

Preqin June hedge fund performance data

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