Hedge funds were down 1.88% on average in May – a month that saw global markets shed significant value. However, the hedge fund sector’s year-to-date performance remains in the black, with the Eurekahedge Hedge Fund Index advancing 1.30% May YTD. In comparison, the MSCI World Index was down 9.91% in May, standing at -7.64% for the year so far.

• Hedge funds were up 1.30% YTD (May 2010), outperforming global markets by 8.94% YTD.
  
• Distressed debt hedge funds added a 14th consecutive positive month, gaining 50.91% over this period.
  
• The first five months of the year saw nearly 220 fund launches across the globe.
  

May turned out to be a tough month for global markets as they were hit by a series of bad news. The ‘flash crash’ of US markets on 6 May was an ominous sign at the start of the month, followed by sudden dips in the Asian markets a few days later. The continuing sovereign debt problems in the eurozone, the major oil spill in the Gulf of Mexico, fears of a conflict in Korea and the unrest in Thailand all contributed to heightened volatility in global markets and affected the already fragile market sentiment.

Hedge funds across all regional mandates ended the month in negative territory; however, managers of all regional mandates beat their respective underlying market indices. In absolute terms, Latin American and North American managers were the best performers for the month (in the sense of losing the least), down 0.87% and 0.92%, respectively, while the Bovespa was down 6.64% and S&P 500 lost 8.2%. In relative terms, European hedge funds delivered the most outperformance, down 2.72%, beating the MSCI Europe Index by more than 10%.

Performance across most strategic mandates was negative for the month amid sharp movements, volatility and trend reversals across different asset classes. Distressed debt managers, however, continued to deliver positive returns for the 14th consecutive month, gaining a marginal 0.03% in May and 50.91% since March 2009. Macro-investing funds posted the highest returns for the month, gaining 0.29%. Long/short equity managers lost the most in absolute terms, down 3.63%, due to the large drops seen across global equity markets during the month.