Latest figures show hedge funds outperformed global markets by 7.7% in September

Turbulent conditions and declining equity markets brought with them another month of negative returns for hedge funds in September. The Eurekahedge Hedge Fund Index was down 2.30%  for the month, though it should be noted that the MSCI World Index fell nearly 10% during the same period. More than one-third of all the hedge funds that have reported to the Eurekahedge database for September were in positive territory for the month.

Key highlights for September:

• Hedge funds outperformed global markets by nearly 7.7% in September
• Early reports indicate negative net flows to hedge funds for the first time since November 2010
• CTA/managed futures funds witness 12th consecutive month of net positive asset flow

To read more, please see the full Eurekahedge Index Flash, also accessible on Scribd and Issuu.

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.