Each month, Citi reviews the performance of hedge funds in its Hedge Fund Industry Snapshot. The latest edition looks at August 2015 – a tough month for the broad market, and for hedge funds, too. Composite hedge-fund performance, equal-weighted across funds, suffered its largest monthly losses since May 2012, falling between 1.88% and 2.21% for the month. Nevertheless, hedge funds significantly outperformed the S&P 500, which lost more than 6% over the same time.
Performance & Flows
Dedicated short, a consistent underperformer, finally had a good month in August. Indeed, it was the only strategy that posted a gain for the month, at +0.8%. Emerging markets and distressed were the worst performing strategies, with respective losses of 4.9% and 4.4%; while long/short equity and event-driven also suffered significant drawdowns, and -2.9% and -2%, respectively.
Hedge funds’ losses drove assets under management (“AUM”) down by $78.4 billion, despite $10.5 billion in investor inflows. According to Citi, August 2015 industry losses were the worst since October 2008, when industry AUM fell by $141.5 billion.
Fund Performance by Size
Hedge funds with over $500 million constitute 76% of total hedge-fund AUM, while funds with less than $100 million account for only 5%, and mid-size funds for the remaining 19%. These mid-size funds actually outperformed in August, with median losses of 1.25%. Large and small funds, by contrast, lost 1.62% and 1.96%, respectively.
Use of Leverage
Hedge funds’ use of leverage has been steadily increasing. Although data for August was not yet available, Citi Prime Finance calculated gross leverage as 2.75x assets in July, up from around 2.25x a year ago.
The strategies with the highest leverage ratios were multi-strategy (4.41x), event-driven (4.28x), and global macro (3.97). Emerging markets (0.99x) and long/short equity (1.29x) used the least.
Citi’s Hedge Fund Industry Snapshot also breaks down hedge funds’ shorts by equity sector, and examines their positioning in futures markets. Each of the 11 hedge-fund styles are given their own page with charts and data showing the style’s performance through the end of August, its use of leverage, and comparing performance of funds within the style according to age and size.
For more information, visit Citibank.com.