Hedge funds were down 1.15% in May, ending a ten month winning run for the industry. However managers in all regions outperformed their respective underlying market indices, as the MSCI World Index declined by 2.52% during the month.

Key highlights for May:

• Hedge funds in all regions outperformed underlying markets
  
• Net asset flows remained positive – $4.7 billion of capital invested in hedge funds
  
• Net asset flows for first five months exceed US$100 billion
  
• Latin American managers deliver positive returns for May, up 0.65%
  
• Relative value hedge funds up for twelfth consecutive month, gaining 12.30% during this time
  

Latin American hedge funds delivered the best performance in May, making it the fourth consecutive month of positive returns. The Eurekahedge Latin American Hedge Fund Index was up 0.65% during the month, bringing its YTD return to 3.41%. The MSCI EM Latin America Index was down 3.18%. Japan outperformed underlying markets, losing 0.24% while the Nikkei 225 declined 1.58%. Japanese managers had been positioned conservatively at the start of the month and hence were able to protect their capital in a market that tracked global movements weakly.

North American hedge funds were down 0.36%, however the managers provided considerable downturn protection during a volatile month. The S&P 500 was near to a 3 year high at the start of the month; however it declined 3.5% early on in the month, before recovering some of the losses and closing 1.4% down for May. Similarly, European managers registered losses of 0.52% which can be considered as significant outperformance to the underlying markets – the MSCI Europe Index lost 4.28%.

May was marked by high risk aversion as concerns of the European sovereign debt came to the fore once again and disappointing macroeconomic outlook led to fears of slowing global growth. The month started off with a reversal of the growth trend in April, leading to significant losses for trend following strategies. CTA/managed futures funds registered the largest declines, down 3.07% for the month, as most commodities registered considerable losses while equity indices trended lower. Managers trading in the fixed income space delivered the best returns as bond prices continued the upward trend from April, as the environment of high risk aversion increased demand for fixed income assets. Relative value and fixed income hedge funds were up 0.25% and 0.49% respectively, while returns from arbitrage and distressed debt funds were flat to slightly negative.