After making strong performance gains for seven consecutive months through the period of March to September 2009, the hedge fund industry took a breather in October with a flat to marginally negative performance. The composite Eurekahedge Hedge Fund Index shed 0.3% through the month, as most asset classes and regional indices registered net declines, with the MSCI World Index losing 1.85%. Sharp reversals in market risk appetite near the month-end negated the gains made during the earlier part of October, which also saw several asset classes hit their one-year highs before declining.

Although the performance resulted in a US$2.4 billion decline in assets, the gains made through positive inflows of US$10 billion during the month resulted in a net increase in assets under management, bringing the size of the global hedge fund industry to US$1.45 trillion. Although the recent market correction had been expected by and large, continuing net inflows to hedge funds indicate that investors are confident that the sector will continue to provide more consistent risk-adjusted returns than other asset classes. Figure 1 below shows the monthly asset flows across the hedge fund industry since the start of 2008.

Figure 1: Summary Monthly Asset Flow Data for 2008-to-date

October marked the sixth consecutive month of net positive flows to the hedge fund industry, with over US$72 billion of net inflows seen since May 2009. The global markets are now expected to perform in a more subdued manner for the rest of the year and owing to the following factors, we expect to see more...

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