'Excellent first quarter' for funds of hedge funds

Friday, 08 June 2007 12:00

It was an excellent first three months of the year for investors in fund-of-hedge-fund products.

That is according to ratings agency Standard & Poor’s (S&P), which adds that the best performing funds in the last quarter strongly featured equity-related strategies including special situations funds, merger arbitrage and long/short equity hedge.

Strong merger and acquisition activity around the world boosted their performance.

“Corporate activity has a strong tailwind behind it currently,” said S&P lead analyst Randal Goldsmith.

But there was a warning as well.

“Equity and related strategies are being well rewarded although there is more risk of confidence suddenly disappearing. On the other hand, credit is tightly priced and exposed to the risks but does not share fully in the upside,” said Mr Goldsmith.

The star funds in the first quarter 2007 were Thames River’s fund-of-hedge-funds and the Warrior I and II funds, which returned 6.8 per cent and 8.7 per cent respectively.

Warrior fund manager Ken Kesey-Quick invests in funds run by up and coming managers and is rated by S&P as among the best in the business at this.

Paulson Advantage Plus delivered one of the fund’s most impressive returns – 28.5 per cent – who is an event-driven manager applying a short credit strategy in the US sub-prime mortgage sector.

Other special situations holdings which did well included Rhine Alpha Stars (a Zurich-based long-short equities manager with a focused portfolio of German stocks), Merchant Commodity and Davidson Kempner DO.

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