EQUITY, EVENT DRIVEN HEDGE FUNDS LEAD INDUSTRY TO BEST GAIN SINCE 2010

Technology/Healthcare, Yield Alternatives and Distressed Strategies lead 2013 performance as HFRI posts 16th advance in 19 months;

Macro, CTA strategies post narrow decline for 2013 despite ending year with 3rd consecutive monthly gain

CHICAGO, (January 8, 2014) - Hedge funds posted a fourth consecutive month of gains in December led by Equity Hedge and Event Driven strategies, as broad-based performance gains across all strategies contributed to the strongest annual performance since 2010. The HFRI Fund Weighted Composite Index gained +1.2 percent in December, bringing full year 2013 performance to +9.3 percent , as reported today by HFR, the established global leader in the indexation, analysis and research of the global hedge fund industry. The HFRI Fund of Hedge Funds Index advanced +1.2 percent for December and +8.7 percent for 2013, the best annual performance since 2009.

Performance gains for December and for 2013 were led by resurgent Equity Hedge strategies, with the HFRI Equity Hedge Index gaining +1.6 percent for the month and +14.6 percent for the year, also the best annual performance since 2009. Mirroring trends in the broader equity market and benefitting from the strong IPO environment, the strongest area of EH sub-strategy performance was from funds focused on Technology and Healthcare, with the HFRI EH: Technology/Healthcare Index gaining +2.6 percent in December and +22.3 percent for 2013, completing a 5th consecutive year of gains and nearly topping the +25.8 percent gain for 2009. Energy/Basic Materials funds also posted strong gains for December, up +2.1 percent, while Fundamental Value strategies climbed +1.9 percent for December and +20.1 percent for 2013.

Event Driven funds also posted gains in December, as strategic M&A and shareholder activism continued to drive performance. The HFRI Event Driven Index was up +1.2 percent for December and +12.5 percent for 2013, also the best annual performance since 2009. ED funds specializing in Activist and Special Situations strategies led ED returns in both December and for 2013, with these climbing +2.0 and +1.6 percent for the month, respectively, and +16.6 and +15.1 percent for the full year. The HFRI Distressed Index gained +13.6 percent in 2013, completing the fourth double-digit gain for Distressed funds in the last five years.

Fixed Income-based Relative Value Arbitrage posted a fifth consecutive year of gains in 2013, advancing +0.9 percent in December and +7.2 percent for 2013; RVA has led all hedge fund strategies with an annualized gain of +10.7 percent since 2009. RVA was led by Yield Alternatives and Asset Backed strategies for the month, with the HFRI Yield Alternative Index gaining +0.6 percent for December and +16.7 percent for 2013, while the HFRI FI: Asset Backed Index gained +1.6 for December and +10.7 percent for the full year.

Macro strategies ended 2013 with a third consecutive month of gains, as performance improved across Systematic CTA, Discretionary Commodity, Energy, Currency and Thematic Multi-strategies into year end, but this was not sufficient to overcome early 2013 losses. The HFRI Macro Index gained +0.5 percent for December, but posted a narrow drop of -0.3 percent for 2013, the third consecutive year of declines. The HFRI Systematic Diversified CTA Index also gained +0.6 percent for December but declined -0.75 percent for 2013, also capping a third consecutive year of declines. Active Trading and Multi-Strategy funds +0.8 and +0.6 percent, respectively, for December and +5.8 and +3.8 percent for 2013. In a volatile month for Emerging Markets punctuated by equity declines in China and Brazil, the HFRI Emerging Markets Index gained +0.14 percent, ending 2013 with a gain of +5.2 percent.

"Hedge funds posted the strongest year since 2010 with gains concentrated in both Equity Hedge and Event Driven strategies, as long-biased beta equity exposure, high yield credit tightening and the dynamic environment for shareholder activism and corporate transactions offset the negative impact of short equity portfolio hedges, rising yields and macro complexity associated with stimulus measures by the US Federal Reserve," stated Kenneth J. Heinz, President of HFR. "While both equity and credit-oriented strategies had the best performance since 2009, the reduction of quantitative easing into the end of 2013 constitutes a crucial inflection point for hedge fund strategy performance, allowing for a beginning of the normalization of market interest rates integral to the performance of Fundamental Macro and Equity hedge fund strategies. As this process evolves, the attribution of hedge fund performance between long and short portfolios is likely to shift to a more balanced distribution, enabling profitable mean reversion across equity and fixed income positions and contributing to a more tractable environment for Macro strategies, extending industry wide performance gains into 2014."

Comments reference Flash Update performance figures as posted on January 8, 2014.

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