Hedge funds delivered a mixed bag of results in March as bank risk jumped amid instability and dislocations arising from a number of bank failures and the acquisition of Credit Suisse by UBS, according to Monday release from HFR, the research firm tracking the global hedge fund industry.
The HFRI Fund-Weighted Composite index declined an estimated 0.8% in March; the investable HFRI 500 Fund-Weighted Composite index slipped an estimated 1.2%; and the HFRI 400 (U.S.) Fund-Weighted Composite index fell by an estimated 1.5%.
However, the HFR Cryptocurrency index soared 5.2% in March, increasing its year-to-date performance to 31.4%. The HFR Risk Parity Vol 15 index gained 5.9% in March, bouncing back from a 6.8% decline in February, placing its year-to-date return at 7.1%.
All told, almost one-half of hedge funds reported positive performance in March.
HFR also said in the release that equity hedge funds, which invest long and short across specialized sub-strategies, led strategy gains in March, driven by fundamental growth and quantitative directional sub-strategies, as well as short exposures to financials.
Both the HFRI Equity Hedge (Total) index and the investable HFRI 500 Equity Hedge index gained an estimated 0.9% in March.
Equity hedge sub-strategy gains in March were led by the HFRI EH: Fundamental Growth index, which gained 1.5%, and the HFRI EH: Quantitative Directional index, which rose by 1.4%.
Event-driven strategies, which usually focus on out-of-favor, deep value equity exposures and speculation on merger situations, fell in March as risk in financials surged. The investable HFRI 500 Event-Driven index fell by an estimated 1.8% in the month, while the HFRI Event-Driven (Total) index slumped by an estimated 1.65%.
"Hedge funds effectively navigated a historic surge in bank and financial risk, as well as an adjustment to interest rate outlook in March, including the failure of (Silicon Valley Bank), generalized weakness across regional banks, and the government and regulator-assisted acquisition of Credit Suisse by UBS," stated Kenneth J. Heinz, president of HFR, in the release. "The combination of these financial events is likely to have long-term implications for financial markets, in addition to hedge fund performance, with macroeconomic impacts ranging from policy regarding uninsured deposits, integrity of (Additional Tier 1) financing, and precedent for government involvement in destabilized financial situations, with these likely to contribute to increased uncertainty and likelihood of extreme dislocations."
