Of note is the industry’s falling volatility of returns. Standard deviations for event-driven, fixed-income and fund-of-hedge-funds (global low volatility sector) strategies have dropped to 5.23, 6.07 and 4.78 per cent respectively. All other fund-of-hedge-fund strategies as well as market-neutral equity and multi-strategies had standard deviations of less than 7.54 per cent. However, the industry’s overall standard deviation was 11.85 per cent, driven higher by global macro/commodities/futures strategy (16.12 per cent standard deviation) and long/short equity strategy (15.01 per cent).
The lowest standard deviation by an individual fund, a remarkable 1.07 per cent, was obtained by the Kapstream Wholesale Absolute Return Income Fund which returned a year to date performance of 4.74 per cent. In fact, the fixed-income strategy sector, which consists of six funds including Kapstream, produced the highest year to date return of 6.03 per cent with the second lowest risk of just 6.07 per cent standard deviation. The industry’s strong riskadjusted performances were recognised at the annual Australian Hedge Funds Awards held recently. I would like to congratulate the Prodigal Absolute Return Cayman Fund as the Australian Hedge Fund of the Year for 2010.
There were seven other category winners including David Bell for Contribution to the Industry; ING for Best Investor Supporting the Industry; and NZ Assets Management for Best Fund of Fund. Funds managed by Pengana, Prodigal, Tasman, and GMO won recognition as Best Emerging Manager, Best Long/Short & Absolute Return; Best Market Neutral and Best Global Macro/Futures respectively. The Awards Committee (which included myself ) assessed over 150 funds on quantitative factors with three years of data. We also ran a qualitative overlay.
The hedge funds industry has come a long way since our first awards’ ceremony eight years ago when fewer than 70 funds were analysed. More importantly, the traditional funds management industry has since adopted many hedge fund industry characteristics, including more absolute-return focussed products, increased use of performance fees, and more analysis using measurement tools such as the Sharpe ratio. These developments give me confidence that the hedge funds industry will continue to grow. News that MediaSuper will allocate around 5 per cent (equating to around $130 million) of its assets to local hedge funds is another boost to the industry.