HFRX Indices February 2014 performance notes

Global financial markets posted gains for February, despite increasing geopolitical tensions arising from secular unrest in Ukraine. Global equity markets posted broad-based gains recovering prior month declines, led by US Technology, Cyclical, Healthcare and Commodity-sensitive exposures. European and Asian equities also posted gains, with European gains led by France, Italy, Sweden and the UK, while Asian gains were led by Hong Kong, the Philippines, Australia and Thailand. Despite these, Emerging Market equities across Latin America were mixed, China and the Middle East posted gains while Russian equities posted declines. US and developed European yields were little changed against the prior month end, with bond yields measuring small declines in Italy and Spain. The US Dollar declined against most currencies, reversing much of the prior month's gains, falling sharply against the British Pound Sterling and Euro; the US Dollar also fell sharply against Emerging Market and Commodity currencies, with the largest monthly declines posted against the Indonesian rupiah, New Zealand Dollar, South African Rand and Brazilian Real. The US dollar posted a late month gain against the Chinese RMB, while the virtual currency Bitcoin fell sharply in value for the month. Commodities across Energy, Metals and Agriculturals continued to post strong gains, led by sharp gains in Coffee, Gold, Oil, Silver, Platinum, Hogs and Soybeans. Merger activity remained robust, led by Facebook's $19 billion acquisition of WhatsApp. Hedge funds posted gains with the HFRX Global Hedge Fund Index gaining +1.59% for the month, while the HFRX Market Directional Index gained +2.83%.

HFRX Equity Hedge Index posted a gain of +2.67% in February, the best monthly gain since December 2010, with broad based contributions across most EH strategies. HFRX Fundamental Growth Index posted a leading gain of +4.16%, best performance for the Index since September 2010. HFRX: EHFG Index leads all Indices with a +4.54% YTD gain, with contributions from exposures to Global Healthcare and European, Asian and US mid- and small-cap equity. HFRX Fundamental Value Index gained +2.22% with contributions from exposures to Financials, Consumer and European large-cap equity. HFRX Market Neutral Index gained +0.73%, with gains across mean reverting, factor-based models as volatility declined and dispersion narrowed.

HFRX Event Driven Index posted a gain of +2.55% in February, the best performance since January 2013, with significant contributions from Equity Special Situations and Distressed/Restructuring strategies. Merger activity remained robust, led by Facebook's $19 billion acquisition of WhatsApp. HFRX Special Situations Index gained +2.99%, also the best performance since January 2013, with contributions from core positioning in American Realty, Time Warner, Sensient Technologies, Apple, Herbalife, eBay, Jos A. Bank, Ferro and American Airlines. HFRX Distressed Index posted a gain of +1.59%, its best performance since February 2012, with contributions from restructurings across Financials, Communications and Consumer sectors in the US and Europe. HFRX Merger Arbitrage Index posted a modest gain of +0.07%, with mixed contributions from transactions in Suntory/Beam, CapitalSource/PacWest Bancorp, Sterling Financial/Umpqua Corp, Avago Technologies/LSI and Tower Financial/Old National Bancorp.

HFRX Relative Value Arbitrage Index posted a gain of +1.33% in February, its best performance since January '13, with contributions across Convertible Arbitrage and Multi-Strategy managers. HFRX Convertible Arbitrage Index gained +1.51%, the best performance since May 2013, as credit gains offset volatility declines, while HFRX RV: Multi-Strategy Index and HFRX Fixed Income Credit Index posted gains of +1.28% and +1.36%, respectively, also their best performance in more than a year. HFRX MLP Index gained +1.22% on strong demand for yield generating energy infrastructure partnerships.

HFRX Macro Index posted a decline of -0.75% in February, with contributions from Currency, Fixed Income and Emerging Markets strategies, offset by trend-following CTA managers. HFRX Macro: Systematic Diversified Index declined -1.42% as gains in equities and commodities were offset declines in currency and fixed income. HFRX Emerging Markets Index posted a gain of +0.80% with contributions from Asian convertible and equity strategies, paring prior month losses.

Comments reference performance as published for February 28, 2014.

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