In a context of moderate performance in the stock and bond markets in 2007, a new report from French business school EDHEC reveals that funds of hedge funds, which are often taken to give an aggregate view of the industry’s performance, returned 10.07 per cent on average for the year, compared to 3.53 per cent for the S&P 500 and 4.14 per cent for the Lehman Global US Treasury Bond index.

In the EDHEC report Hedge Fund Performance in 2007 Véronique Le Sourd, senior research engineer with the EDHEC risk and asset management research centre, provides a strategy-by-strategy account of the performance of each hedge fund strategy included in the EDHEC alternative indices. While all hedge fund strategies posted positive returns, a majority saw a slight fall-off in performance compared to 2006. Only five of the thirteen strategies obtained higher returns than in 2006: CTA global, emerging markets, equity market neutral, global macro, and short selling.

As in 2006, the best performing strategy was emerging markets, with a return of 20.79 per cent. It was followed by global macro and long/short equity, with respective returns of 12.93 and 10.53 per cent. The lowest return, of 3.87 per cent, was from convertible arbitrage managers. The volatilities of the strategies turn out to be quite low for the last three years, ranging from 1.61 per cent for fixed income arbitrage to 9.07 per cent for short selling.

Contrary to fears in August 2007 on the role of hedge funds in the subprime crisis and the consequences of the crisis for hedge funds, the results for 2007 confirm EDHEC’s declarations on the subject: that hedge funds were probably more capable than other asset managers of coping with the crisis.