After ending 2010 with excellent results, the hedge fund industry took a breather in January and delivered a flat to slightly positive performance. The Eurekahedge Hedge Fund Index was up 0.01% in January – a month marked with mixed returns among underlying strategies. The MSCI World Index advanced 1.87% during the month.
Below are the highlights for January:

• Assets under management in global hedge funds cross $1.67 trillion.
  
• Strong launch activity continued into 2011, with more than 30 hedge funds launched in January.
  
• Hedge funds witnessed the seventh consecutive month of positive returns.
  
• Hedge funds investing in Japan and Eastern Europe & Russia delivered the best performances, up 1.36% and 2.37%, respectively.
  

Japanese hedge funds delivered the best performance among the main hedge fund regions, gaining 1.36% in January. Managers leveraged on the better-than-expected earnings, corporate activity and a strong yen to outperform the Nikkei 225 which was up 0.09% in the month. Returns from other developed economies were also positive, with the Eurekahedge North American Hedge Fund Index gaining 0.67% while European hedge funds advanced 0.10% during the month. Stronger outlook on the US economy, as well as easing concerns over the European debt situation, drove up the regional markets – the S&P 500 rose 2.26% while the MSCI Europe Index climbed 1.83% in January.

Returns from emerging markets hedge funds were mixed as Latin American hedge funds witnessed losses of 0.44% while Asia ex-Japan hedge funds gained 0.24% in January. However, these figures underscore a significant outperformance by the managers as regional market indices ended the month in negative territory. The MSCI EM Latin America Index was down 4.17% while the MSCI AC Asia Pacific Ex Japan Index lost 0.59% in January. The best performance among emerging market mandates was delivered by hedge funds investing in Eastern Europe and Russia, up 2.37%, as managers capitalised on the rallies in underlying markets. The MSCI EM Eastern Europe Index increased by 1.52% while the Russia AK&M Composite Index finished the month with excellent gains of 5.68%.

Hedge funds employing fixed income strategies stood out with the best performance among the different strategic mandates in January. The Eurekahedge Fixed Income Hedge Fund Index advanced 2.45% during the month5 while distressed debt managers gained 1.56% as high yields continued their rally into the new year. Managers employing pair trading strategies also witnessed healthy returns – the Eurekahedge Relative Value Hedge Fund Index increased 1.42% in the month while arbitrageurs witnessed positive returns of 1.32%.