Eurekahedge to launch new asset weighted ‘Mizuho-Eurekahedge Index’

SINGAPORE (September 28, 2011) - Eurekahedge, a market leading alternative fund data provider, announced today that they are to launch a suite of new asset weighted indices, under the name ’Mizuho-Eurekahedge Index’.

This ground breaking suite of indices follow a rigid methodology that will enable investors to easily utilize them for benchmarking their portfolios and building products such as replication indices, passively managed index funds and ETFs. Alongside Eurekahedge’s existing indices this will be one of the largest collections of hedge fund indices in the world. This global index will draw on both the Mizuho and Eurekahedge brands in an effort to further establish the presence of both entities in the market and raise their recognition in new investment sectors.

In March 2011, Mizuho Corporate Bank, Ltd. (“Mizuho”) acquired a 95% stake in Eurekahedge. Along with Eurekahedge in Singapore, Mizuho also covers alternatives through Mizuho Global Alternatives Investments, Ltd. (MGAI) in Tokyo and Mizuho Alternative Investments, LLC (MAI) in New York.
The indices will be available in October 2011 with September performance numbers and data going back to January 2005.

Notes for editors

Quotes
“With the current volatility in the markets there is increasing demand for more manageable and predictable return streams. The Japanese pension fund industry is currently reported to have almost US$100 billion invested in alternatives and in particular is undertaking a great deal of research into this area. So with the launch of these indices we have provided the means for financial institutions to create products around these new indices to meet this demand,” said Alexander Mearns, CEO of Eurekahedge.

Mr Mearns goes on to say, “The absolute return fund industry is now back at US$2 trillion and while it is much smaller than the US$30 trillion mutual fund/retail fund industry it has far better annualized returns, less volatility and is growing at a faster rate. In tandem with this growth, we are seeing a strong demand from investors for liquid index linked products such as replication indices and ETFs. In addition we expect the Mizuho-Eurekahedge Index to be the leading hedge fund index benchmark for investors worldwide.”

How the methodology works
The indices will be asset weighted so that the performance of the larger funds will have a more significant impact on the performance of the index. For example, the Mizuho-Eurekahedge TOP 300 All Strategies Index will select the largest 300 funds by assets in much the same way that mainstream equity indices do by market capitalization. In addition historical returns will not be frozen, thereby eliminating backfill bias. Small funds will be ejected and funds must meet minimum assets under management (AuM) and track record criteria in order to enter. All indices will have their funds’ underlying local base currencies converted to USD; and 3 special indices with fully hedged forex transactions for major currencies (USD, JPY, EUR).

Examples of indices to be launched

Mizuho-Eurekahedge Global Index (USD)
Mizuho-Eurekahedge Asia Pacific All Strategies Index (USD)
Mizuho-Eurekahedge Asia Pacific ex Japan All Strategies Index (USD)
Mizuho-Eurekahedge Emerging Markets All Strategies Index (USD)
Mizuho-Eurekahedge TOP 100 All Strategies Index (USD)
Mizuho-Eurekahedge TOP 300 All Strategies Index (USD)
Mizuho-Eurekahedge Long Short Equities Index (USD)
Mizuho-Eurekahedge Multi Strategy Index (USD)
Mizuho-Eurekahedge Arbitrage Index (USD)
Mizuho-Eurekahedge CTA / Managed Futures Index (USD)
Mizuho-Eurekahedge Event Driven Index (USD)
Mizuho-Eurekahedge Macro Index (USD)

About Eurekahedge
Founded in 2001, Eurekahedge is an independent financial data and research company focusing on alternative investments. Eurekahedge maintains coverage on approximately 25,000 alternative funds globally and its research covers hedge funds, funds of funds, UCITS III hedge funds, private equity funds, Islamic funds, real estate funds, SRI funds and long-only absolute return funds.

In addition to fund data Eurekahedge publishes the world’s largest suite of over 200 alternative investment benchmark indices, and The Eurekahedge Report, a monthly look at the alternative funds industry’s asset flows, fund performance, macroeconomic trends and league tables.

Eurekahedge has offices in Singapore and New York, and in March 2011 Mizuho acquired a 95% stake in Eurekahedge.

About Mizuho Corporate Bank
Mizuho Corporate Bank, Ltd. provides financial and strategic solutions for the increasingly diverse and sophisticated needs of clients, focusing its efforts on serving major corporations, financial institutions, and public sector entities. A relationship management approach to serving clients enables Mizuho Corporate Bank, Ltd., together with affiliates such as Mizuho Securities Co. Ltd., to develop customized solutions in areas such as corporate, structured and project finance, investment banking, transaction banking and risk management. With offices in more than 30 countries, Mizuho Corporate Bank, Ltd. offers clients both localized service and the extensive reach of a global business network. Mizuho Corporate Bank, Ltd. is a subsidiary of the Japan-based Mizuho Financial Group, Inc. (NYSE: MFG), one of the largest financial services companies in the world, with total assets of over $1.5 trillion as of December 31, 2010.

For further information, please contact:

Sultan Arif
Head of Marketing & Communications
sultan@eurekahedge.com
+65 6212 0930

Alexander Mearns
Chief Executive Officer
alex@eurekahedge.com
+65 6212 0925

Eurekahedge Pte Ltd, Level 4
101C Telok Ayer Street
Singapore
068574
+65 6212 0900

www.eurekahedge.com

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The Eurekahedge Report - September 2011

Hedge funds posted an average return of -2.13% in August, outperforming global equity markets by 5.57% as managers focused on capital preservation strategies. The MSCI World Index tumbled 7.70% off the back of a downgrade of US Treasuries, which also sent the S&P Goldman Sachs Commodity Index down by 1.85% for the month. Managers lost US$3.2 billion of assets through performance, but capital flows from investors continued to be very robust as August marked the ninth consecutive month of positive flows; an increase of US$1.51 billion. Overall hedge fund assets under management remained above the US$1.8 trillion mark, the highest level since September 2008.

Highlights of hedge fund performance and asset flows for the month are as follows:

August 2011	US$ billion
Allocation (Inflows)	24.06
Redemption (Outflows)	-22.55
Net Asset Flows	1.51
Positive Performance (Growth)	116.04
Negative Performance (Decline)	-119.22
Total	-3.18
Overall Total	-1.66

To read more, please see full Eurekahedge Report, also accessible on Scribd & Issuu.  

2011 Key Trends in Islamic Funds

Introduction

Over the last 10 years Shariah compliant funds have seen significant growth, both in terms of the number of funds as well as assets under management (AuM). Rapid developments in the Islamic finance industry, have led to an increasing number of Shariah compliant funds employing different strategies and investing across new asset classes, representing the progress and advances made in the Islamic finance sector. In this report we discuss the key trends observed in the Islamic funds industry since 2000.

The primary goal of Islamic funds is to engage in 'ethical investing' into products and companies compliant with Islamic guidelines. As such, Islamic funds are wealth management vehicles catering to investors wanting exposure to capital markets inside a Shariah framework; the key distinguishing factor from other conventional funds.

Currently, the total number of Shariah-compliant investment vehicles is estimated to be 717, with assets standing just over US$77 billion.

Figure 1: Industry growth since 2000

The Islamic fund sector underwent strong growth in 2007 witnessed by the launch of 180 funds however subsequent years have seen a decline in launch activity. Despite a slow growth rate, it is notable that the number of funds did not decrease. Islamic funds mostly invest in asset-backed securities and do not apply leverage, therefore limiting performance-based losses. Additionally, existing funds have further consolidated their positions in 2009 and 2010. As at end-July 2011, the Eurekahedge Islamic Funds Index was up 38.9% since February 2009.

New launches in 2009 to 2011 although comparatively small in number, represent increasing diversity in the industry in terms of asset classes and industry segments as well as geographies and investors. The sector has adjusted to the changed landscape post-financial crisis and has attracted attention from various quarters including western banks and investors. Sukuk issuances have picked up substantially, even from companies such as General Electric, while new Islamic funds have launched in places like Australia.

Head office locations

Malaysia and Saudi Arabia remain the most popular Islamic fund centres, boasting the most dynamic Islamic finance industry and the greatest number of investors. Saudi Arabia has recently increased its share as the fund centre of choice due to the growing popularity of retail funds among consumers as well as further strengthening of the sukuk market in the country.

One of the early movers in the industry, Malaysia launched Islamic funds early in the 1970s and further cemented its place as the leading fund centre throughout the 2000s. A liberalised Islamic banking sector with Shariah framework established in the 1980s proved to be a conducive environment for growth in the industry. In the last two years, Malaysia further strengthened its place by issuing more licenses to foreign banks, a policy that is set to continue and as such the country looks set to maintain its position as the leading Islamic fund centre in the coming years.

Figure 2: Head office locations by number of funds

Geographic mandates

While 43% of Islamic fund assets are invested in Middle East and Africa - primarily because the region holds the greatest number of companies that are Shariah-compliant - the distribution of assets across various geographic investment mandates have witnessed some significant changes over the last few years. As seen in figure 3, the Middle East/Africa mandate still accounts for the largest share of assets among the distribution of Islamic fund assets across different geographies, though this share has been declining steadily – five years ago 63% of Islamic fund assets were invested in this region. The main reasons for this decline can be attributed to the strong growth witnessed in the Islamic finance sector in other regions and the trend of diversification among Islamic funds.

Figure 3: Geographic mandates by AuM

Fund types

Figure 4 shows the breakdown by fund types in the Islamic fund industry. The majority of Islamic funds are structured as mutual funds catering to retail investors and many of the funds are overseen by well-established Shariah regulations such as the Securities Commission of Malaysia, who help to ensure that managers abide to rules designed to safeguard retail investors.

Alternative investments such as hedge funds and private equity are deemed to be risky products and only make up 10% of the fund population. However, the Islamic asset management sector has become more sophisticated over the years as investors have been exploring increased investing into real assets with a lesser focus into financial assets. As such, there is a large opportunity for Islamic institutions to explore more offerings into index tracker funds, commodity funds and other alternative funds. Commodity funds in particular are said to be well placed for Islamic investors as they comply easily with Shariah policies. 

Figure 4: Fund types by number of funds

Asset classes

Equity investments account for 40% of Islamic fund assets primarily because allocating to Shariah-compliant companies (becoming shareholders) forms the easiest method of Islamic investment. Furthermore, equities have been the best performing asset class in the last 40 years and continue to be the most popular among investors who also find it easier to understand as compared with other more complicated Islamic finance instruments. While fixed income investments account for 14% of the assets, only 7% of the funds employ a fixed income mandate, showing that there are very few but large Islamic funds focused on sukuk investments. Other asset classes are however, becoming increasingly popular as the sector develops to encompass other investments.

Figure 5: Asset classes by AuM

Performance

Over the years, Islamic funds have delivered greater and more consistent performance as opposed to other comparable investments. The Eurekahedge Islamic Funds Index has gained 35.56%^[1] since its inception in December 1999. Comparatively, the DJ Sustainability Index gained 10.29% over the same period of time while the MSCI World Index lost 8.09%.

Figure 6 displays the Eurekahedge Islamic Funds Index mapped out against the DJ Sustainability Index and the MSCI World Index since December 1999, clearly showing that Islamic funds have not only outperformed, but have also delivered returns with significantly less volatility and better downturn protection. For example, in 2008 the MSCI World Index declined by 41.12% and the DJ Sustainability Index was down 42.98% while Islamic funds lost 28.53%.

Figure 6: Performance of Islamic funds vs. stock market indices

Figure 7: Performance of Islamic funds by geographic mandates

In 2011 Islamic funds investing in Europe have so far delivered the best returns, however it should be noted that very few Islamic funds employ a European mandate and all of them are invested in equities. Similarly a handful of North American Islamic funds achieved the best return in 2010. The performance of these funds was helped by positive movements in the equity markets in 2010 and also by high commodity prices, as almost half of the Islamic funds investing in North America are focused on the basic materials sector.

Islamic funds investing in the Asia Pacific region delivered the strongest performance over the past three years as a large proportion of Asia Pacific Islamic funds are invested in the Malaysian and Indonesian markets which saw remarkable growth in 2009 and 2010. The FTSE Bursa Malaysia Stock index jumped 42.31% in 2009 and 19.34% in 2010 while the Jakarta Composite Index has gained nearly 70% in the last three years.

Table 1: Performance of Islamic funds by geographic mandates

	EH Asia Pacific Islamic Fund Index	EH Europe Islamic Fund Index	EH Global Islamic Fund Index	EH Middle East/Africa Islamic Fund Index	EH North America Islamic Fund Index
2011 YTD returns	1.59%	4.57%	2.29%	-2.86%	3.26%
2010 returns	11.23%	4.13%	8.23%	7.28%	12.11%
3 year annualised returns	7.13%	-1.28%	1.92%	-8.90%	0.58%

Source: Eurekahedge

Figure 8: Performance of Islamic funds by asset classes

Equity investing Islamic funds witnessed the strongest returns in 2010 primarily through excellent returns posted by underlying equity markets. In the three year annualised returns measure, Islamic fund managers who were partially or fully invested in fixed income instruments registered healthy gains as they did not suffer as much as equity investing funds during the financial crisis and the Eurekahedge Islamic Fixed Income Fund Index lost only 0.85% in 2008.

Table 2: Performance of Islamic funds by asset classes

	Eurekahedge Islamic Fund Balanced Index	Eurekahedge Islamic Fund Equity Index	Eurekahedge Islamic Fund Fixed Income Index	Eurekahedge Islamic Fund Real Estate Index	Eurekahedge Islamic Fund Money Market Index
2011 YTD returns	0.07%	0.01%	2.04%	4.75%	0.26%
2010 returns	7.97%	12.21%	4.20%	-0.58%	1.14%
3 year annualised returns	2.67%	-0.84%	4.40%	-3.86%	0.60%

Source: Eurekahedge

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[1] All figures given are as of end-July 2011.

2011 Key Trends in Latin American Hedge Funds

Introduction

The Latin American hedge fund space has seen remarkable growth over the past decade. As of July 2011, the number of funds was nearly four times that as of end-2000, while assets over the same period recorded an increase over 23-fold. There are currently 442 operational hedge funds, managing over US$64 billion in assets.

After seeing phenomenal growth from 2000 to 2007, Latin American hedge funds witnessed significant challenges in 2008 and early 2009 amid the global financial crisis. Managers witnessed significant redemptions as panicked investors withdrew large amounts of their capital, which further resulted in performance-based losses due to forced liquidations. Despite heighted redemption pressure and falling underlying markets, the Eurekahedge Latin American Hedge Fund Index lost only 5.08% in 2008.

Figure 1: Industry growth since 2000

Progressing into 2009, the Latin American hedge fund industry bottomed out in the first quarter of the year and resumed its asset growth path through the remaining months of 2009 and into 2010. As at April 2011, industry assets reached a historic high of US$64.2 billion, representing a 63.3% increase since March 2009. This was made possible through a series of positive inflows and strong performance from regional managers.

Asset flows

The following table lists details of the gains in assets under management (AuM) on a monthly basis. In 2009, the Latin American hedge fund industry attracted US$5.9 billion of investment capital while strong performance contributed to US$6.6 billion of asset growth. The Eurekahedge Latin American Hedge Fund Index witnessed one of the best annual performances on record with a 28.83% gain. The following year, AuM climbed to US$60.0 billion due to prior good performance and fresh flows from investors. Latin American hedge funds posted an average gain of 9.63% in 2010. The trend of positive net flows picked up pace through 2011, with the first seven months of the year recording a total net flow of US$2.7 billion, exceeding total net flows for the whole of 2010. Industry assets reached an all time high of US$64.2 billion in April 2011 before settling down to US$64.1 billion in July 2011.

Table 1: Monthly asset flows in Latin American hedge funds

Month	Net Growth (Performance)	Net Flows	Assets at end
Jan-09	0.5	(2.2)	40.2
Feb-09	0.1	(0.9)	39.4
Mar-09	0.2	(0.3)	39.3
Apr-09	0.9	0.6	40.8
May-09	1.2	1.9	43.9
Jun-09	0.1	0.6	44.7
Jul-09	0.8	1.5	47.0
Aug-09	0.6	1.7	49.3
Sep-09	0.9	1.3	51.5
Oct-09	0.2	0.8	52.5
Nov-09	0.7	0.5	53.8
Dec-09	0.4	0.3	54.5
2009	6.6	5.9	54.5
Jan-10	0.1	0.1	54.6
Feb-10	0.1	0.8	55.5
Mar-10	0.6	0.3	56.4
Apr-10	0.2	(0.3)	56.3
May-10	(0.5)	(0.6)	55.2
Jun-10	0.3	(0.2)	55.3
Jul-10	0.6	(0.2)	55.8
Aug-10	0.5	(0.5)	55.8
Sep-10	1.0	1.0	57.7
Oct-10	0.9	0.0	58.7
Nov-10	(0.0)	(0.7)	57.9
Dec-10	1.1	1.0	60.0
2010	4.9	0.7	60.0
Jan-11	(0.1)	0.2	60.1
Feb-11	0.4	0.8	61.3
Mar-11	0.5	0.6	62.5
Apr-11	0.8	0.9	64.2
May-11	(0.1)	(0.2)	63.9
Jun-11	(0.3)	0.1	63.7
Jul-11	0.1	0.3	64.1

Note: all figures are in US$ billion                           Source: Eurekahedge

Figure 2: AuM growth of Latin American hedge funds vs. global hedge funds

Figure 2 compares the percentage asset growth in Latin American hedge funds and global hedge funds since January 2008. During the financial crisis, Latin American managers lost capital at almost the same pace as global hedge funds, however since April 2009, when the industry started to recover, Latin American hedge fund assets started growing at a much faster rate than global hedge funds. The substantial difference in the growth rate between the Latin American hedge funds and their global counterparts carried through from 2009 to 2011. By the end of July 2011, the size of the Latin American hedge fund industry was 15.3% larger than what it was in January 2008 while the global hedge fund industry declined by 1.8%.     

Figure 3: Industry growth of onshore and offshore funds

Both onshore and offshore hedge funds delivered remarkable growth in terms of assets and fund population from 2000 to 2007 with offshore funds displaying a stronger growth pattern. By the end of 2007, the offshore Latin American hedge fund industry stood at US$43.8 billion while their counterparts managed US$12.6 billion of capital. In the following years however, the pace of offshore fund growth slowed while onshore funds continued to attract more capital. After 2008, there was a vigorous demand for more transparency and better hedge fund regulation from investors, which turned the tables in favour of onshore Latin American hedge funds. The interest for onshore hedge funds followed on at an exponential rate and continued on into 2011 to the extent that the industry size has most recently exceeded the offshore industry in July this year.    

Head office locations and fund domiciles

Figure 4a-4c: Head office locations by number of funds

Most Latin American hedge funds have head offices in Brazil with 66.2% of the fund population having representatives in the country. Brazil is the most popular place to set up an office in Latin America as the country has enjoyed an economic boom in recent years, making it both the largest economy in the Latin American region and the most developed in terms of liquidity and sophistication of its financial services industry. The growing population of high net worth individuals in Brazil has also provided hedge fund managers with a pool of investors who are familiar with the markets.

Figure 5a-5b: Fund domiciles by number of funds

Figures 5a–5b show where most Latin American hedge funds chose to register their funds by locations. The registration of a fund involves a common fund structure to enlist the master fund in an offshore location, followed by developing various currency classes from the mother fund to be registered in various Latin American regions. There are many factors to choosing a fund domicile but offshore locations tend to have a greater advantage over local domiciles as they are often exempted from taxes and are less restricted for managers and directors of the funds. An important factor in the choice of fund domiciles is reputable jurisdiction and excellent court systems, which are evident in the locations listed above. The offshore industry continues to be dominated by Cayman Islands-domiciled funds while Brazil unsurprisingly, is the domicile of choice for more than 80% of the onshore funds.

Geographic mandates

Figure 6a-6c: Geographic mandates by AuM

The change in investment allocation of Latin American hedge fund investors over the years as seen in figures 6a-6c, indicate clients’ preference of choosing to invest more in the developing markets. Allocations to Brazilian and Latin American geographical mandates increased from 34.9% in July 2007 to 49.1% in July 2009 and to 53.7% in July 2011. This steady increase reflects the confidence people have in Latin America investing funds. With the troubles in Europe and in the US, it seems natural that assets of Latin American or emerging market focused funds would continue to grow in future, as the regions offer more attractive opportunities to investors.     

Strategic mandates

Figure 7a-7c: Strategic mandates by AuM

The breakdown of Latin American funds by strategies in figures 7a-7c show that the most notable difference over the years is the increase in percentage of assets managed by macro hedge funds. Macro-investing Latin American hedge funds grew their AuM from US$5.2 billion in July 2007 to US$12.8 billion; a 146% increase in short span of four years. The percentage of onshore multi-strategy Latin American funds fell from 52.1% in July 2007 to 45.9% in July 2011 even as the market share of all multi-strategy funds was almost unchanged in the same period, due to a greater competition for capital and better performance of other onshore strategic mandates in the recent years. 

Fund sizes

Figures 8a-8c: Industry breakdown of hedge funds by fund size (US$ million)

Population changes in the Latin American hedge fund industry for the last four years according to their fund sizes can be seen in figures 8a-8c. The most significant change is the increase in the percentage of small funds with less than US$20 million of AuM; from 15% in 2007 to 29% in 2011. The bigger pool of financial talent has also contributed to the proliferation of small hedge funds as a number of professionals who used to work in investment banks have moved into the fund management business. The largest funds with managers’ managing more than US$500 million of capital saw the largest drop in market share from 10% to 5% between July 2007 to July 2009, primarily due to the heavy redemption pressure during the financial crisis. However, given the strong asset flows to the region since 2Q 2009, the population of large hedge funds has increased to account for 8% of the total industry,

Funds above high watermark

Table 2: Percentage of funds above December 2008 high watermark as of July 2011

	All	Arbitrage	Distressed debt	Event driven	Fixed income	Long/short equity	CTA	Macro	Multi-strategy	Relative value
Average hedge fund worldwide	51	56	56	55	59	53	42	47	53	52
Latin America-investing	64	83	NA	75	63	66	NA	71	63	50
Onshore Latin America-investing	69	83	NA	100	78	71	NA	69	67	50
Offshore Latin America-investing	53	NA	NA	60	43	53	NA	75	50	NA

Source: Eurekahedge

Table 2 displays the percentage of Latin American and global hedge funds that have exceeded their December 2008 net asset values (NAV) as of July 2011. Since the high watermark differs from investor to investor, depending on the NAV level at the time of capital allocation, we are taking the NAV of funds at December 2008 as the starting point for this analysis to determine if they are above their high watermarks or not. This is because hedge funds witnessed significant outflows at that time, and since then they raised new capital.

Most managers have a high watermark mechanism which ensures that the general partner or manager does not take a performance fee when the fund has a negative performance over the previous performance fee period. Arguably this might encourage the manager to take more risk when performance is below the high watermark and less risk when the fund is above the high watermark. Still, the high watermark is one of the assessments of manager skill as an investor is more likely to invest in a fund that continually exceeds its high watermark. The data shows that the percentage of Latin American hedge funds that have surpassed their December 2008 NAV is higher than the global average, showing that a greater proportion of Latin American managers would have earned their performance fees in 2011 as opposed to the global hedge fund managers.

Performance review

Figure 9: Performance of Latin American hedge funds vs. underlying markets

Figure 9 illustrates the performance of Latin American hedge funds and the MSCI Latin American Index from 2000 to July 2011. Over this period Latin American hedge funds outperformed underlying equities by a massive 230.69% while the difference for onshore Latin American hedge funds is even larger at more than 352%. Not only did Latin American managers beat the MSCI Index with a higher return, they also had lower volatility. The annualised volatility for the Eurekahedge Latin American Hedge Fund Index was 5.86%; less than a third of the volatility of the MSCI Latin American Index which was 19.74%. Another distinguishing statistic is the drawdown figures for hedge funds and Latin American stocks as the latter fell by as much as 47% during the recent 2008 crisis while hedge funds only shed 10.8% on average.

Figure 10: Performance of onshore and offshore Latin American hedge funds

Table 3: Performance of onshore and offshore Latin American hedge funds

	EH Latin American Hedge Fund Index	EH Latin American Offshore Hedge Fund Index	EH Latin American Onshore Hedge Fund Index
2011 YTD returns	2.39%	0.83%	3.05%
2010 returns	9.63%	7.99%	10.34%
3 year annualised returns	10.00%	5.27%	11.92%

Source: Eurekahedge

Table 3 and figure 10 display the performance of Latin American hedge funds across domiciles which show broad and healthy gains across all three time frames. Onshore funds recorded the greatest return in all time periods with three year annualised returns of 11.92%, 2010 returns of 10.34% and a 2011 gain of 3.05%. Most of the onshore funds invest in local assets and the strength of the Brazilian real along with very high interest rates have helped to boost the performance of managers. Another reason why onshore funds have done particularly well is the performance of multi-strategy funds, which form the bulk of the onshore fund population. Multi-strategy managers are able to diversify the risks and navigate through volatile markets through the use of various investment styles. Offshore Latin American hedge funds on the other hand, are mostly focused on the long/short equity strategy which tends to be more correlated with stock market betas. Even though offshore managers may enjoy a tax advantage over onshore funds, the Eurekahedge Latin American Offshore Hedge Fund Index was only up 5.27% on an annual basis for the last three years, less than half the gain recorded for Latin American onshore funds.      

       

Figure 11: Performance of new vs. existing Latin American hedge funds

Table 4: Performance of new vs existing Latin American hedge funds

	Recent Latin American start-ups	Large and experienced LAHF (>500M, at least 3 year track record before Dec 2007, incepted pre 2008)
2011 YTD returns	-0.08%	3.88%
2010 returns	12.38%	14.25%
3 year annualised returns (July 2008 to July 2011)	9.80%	7.91%

Source: Eurekahedge

Figure 11 and table 4 compare the returns of Latin American start-ups and hedge funds that have been around for a few years. We define start-ups as funds incepted from January 2008 onwards and veterans as managers who have a three year track record as of December 2007 and managed more than US$500 million of AuM. The average performances of these funds are plotted starting from January 2008. As shown in figure 11, Latin American start-ups outperformed experienced managers by 24.97% from January 2008 to July 2011, but fell behind the latter in the last one and a half years. Start-ups registered a 0.08% decline in 2011 and a 12.38% gain in 2010, both of which fell short of the 3.88% and 14.25% from experienced hedge funds. Another interesting point is that start-ups had better risk management during the nine month period market turmoil from July 2008. It is clear from figure 11 that newer funds had a lower drawdown compared to larger and more experienced hedge funds, seeming to imply that hedge funds incepted in the last two and a half years tried harder to preserve capital during the 2008 to 2009 market fallout but underperformed experienced and larger managers when market recovery was underway. 

Figure 12: Performance of strategic mandates

Table 5: Performance of strategic mandates

	Arbitrage	Event Driven	Fixed Income	Long/Short Equities	Macro	Multi-Strategy
2011 YTD returns	5.69%	-4.95%	6.44%	0.06%	5.38%	2.98%
2010 returns	8.07%	8.79%	9.65%	10.86%	4.72%	9.76%
3 year annualised returns	10.00%	12.58%	11.30%	9.81%	9.23%	9.62%

Source: Eurekahedge

As seen in figure 12, fixed income hedge funds benefited the most from the volatile market environment in 2011; the Eurekahedge Latin American Fixed Income Hedge Fund Index was up 6.44% for the year and 9.65% in 2010. When compared against fixed income managers in other regions, Latin American fixed income funds delivered significantly better results. The index gained 381.64% since inception whereas the average fixed income hedge fund rose by only 174.35%. Even the second best performing sector North American fixed income funds delivered a 226.96% return.

The strongest performance over the past three years has been event driven Latin American funds which saw a total return over this period at an excellent 42.68%, thanks to robust corporate activities in 2009. In that year, the Eurekahedge Latin American Event Driven Hedge Fund Index soared 58.58% with 12 months of positive monthly gains from January 2009 to December 2009.