January 8, 2008 – New York, NY – Hennessee Group LLC, an adviser to hedge fund investors, announced today that the Hennessee Hedge Fund Index advanced +0.51% in December (-19.15% YTD), while the S&P 500 advanced +0.78% (-38.49% YTD), the Dow Jones Industrial Average declined -0.60% (-33.84% YTD), and the NASDAQ Composite Index advanced +2.70% (-40.54% YTD). Bonds advanced, as the Barclays Aggregate Bond Index increased +3.73% (+5.24% YTD).
“While the Hennessee Hedge Fund Index is down –19% this year, it has significantly outperformed equity benchmarks on a relative basis – by almost 20%,” commented Lee Hennessee, Managing Principal of Hennessee Group. “On a relative basis, hedge funds continue to prove themselves as an attractive asset class, generating a better risk-adjusted return than traditional money management. Investment committees are revisiting their mandates to increase allocations to hedge funds.”
“The Fed is intent on normalizing interest rate spreads between Treasuries, corporates and consumer rates,” said Charles Gradante, Co-Founder of Hennessee Group. “According to Hennessee Group research, credit spread strategies should be one of the top performing strategies to invest for 2009. Credit spreads for high yield over Treasuries are currently more than 18%, more than 3 times its average since 1990. Credit strategy managers will be able to put up some impressive gains.”
The Hennessee Arbitrage/Event Driven Index advanced +1.00% in December (-18.57% YTD). The Hennessee Distressed Index increased +1.27% in December (-26.30% YTD), as the spread on the Merrill Lynch High Yield Index tightened from to 1988 bps to 1812 bps during the month, after hitting a new all-time high of 2182 bps mid month. Managers are seeing several short-term technical distressed opportunities and believe that we are on the cusp of a plethora of long-term distressed opportunities, which are likely to arise as default rates continue to accelerate over the next 12 to 18 months. The Hennessee Merger Arbitrage Index advanced +1.93% in December (-0.87% YTD). Several managers experiences losses on news that Dow Chemical’s joint venture with the Kuwait Investment Authority was cancelled, calling into question the ability of Dow to finance its acquisition of Rohm and Hass, a popular merger arb position. The Hennessee Convertible Arbitrage Index advanced +3.90% (-20.87% YTD), its first monthly advance since May. Managers benefited from a tightening of credit spreads from extreme levels as well as secondary market richening and declining interest rates; a trend Hennessee Group believes will continue in 2009.
The Hennessee Long/Short Equity Index advanced +0.31% in December (-18.34% YTD). While the equity markets staged a late year rally (the S&P 500 has increased +24% since November 20), hedge fund managers generally lagged as they remained well hedged and were unwilling to take any significant directional risk. Managers state that the current run up in prices may have gotten ahead of itself and are looking for opportunities to put on new short positions. Managers are cautious given the sharp decline in corporate earnings and the consumer-led recession; that said, they are finding attractive long-term opportunities on the long side. 2009 should present an exceptional environment for hedge funds, as it will lend itself to generating alpha via stock selection on both long and short side of the portfolio.
“Year-end redemptions were significant, as the average fund returned 15% to 25% of investors’ assets. Combined with negative performance and complete liquidations, the entire hedge fund industry started 2009 at close to 50% of the capital it was at the beginning of 2008,” said Charles Gradante. “However, this should be a positive for funds as less capital will be chasing the same long/short trades, which should lead to better returns.”
The Hennessee Global/Macro Index advanced +0.61% in December (-20.72% YTD). International equities staged a rally in December as investors took advantage of oversold conditions and increased risk, as the MSCI EAFE Index advanced +5.92% (-45.09% YTD), outperforming U.S. markets. The Hennessee International Index advanced +2.76% (-21.78% YTD) as managers maintained low gross exposures into year end. The Hennessee Macro Index advanced +2.06% for the month (+3.37% YTD), and is one of the top performing strategies for the year. Many managers expect Treasury yields to increase in 2009 as yields have plummeted and are unsustainable. One of the most popular (and crowded) trades is being short Treasuries. Many managers are bullish on commodities after a significant correction in 2008 and strong fundamentals. Managers are also bullish on gold as a safe haven, hedge against the dollar and hedge against inflation.
About the Hennessee Group LLC
Hennessee Group LLC is a Registered Investment Adviser that consults direct investors in hedge funds on asset allocation, manager selection, and ongoing monitoring of hedge fund managers. Hennessee Group LLC is not a tracker of hedge funds. The Hennessee Hedge Fund Indices® are for the sole purpose of benchmarking individual hedge fund manager performance. The Hennessee Group does not sell a hedge fund-of-funds product nor does it market individual hedge fund managers. For additional Hennessee Group Press Releases, please visit the Hennessee Group’s website. The Hennessee Group also publishes the Hennessee Hedge Fund Review monthly, which provides a comprehensive hedge fund performance review, statistics, and market analysis; all of which is value added to hedge fund managers and investors alike.
Description of Hennessee Hedge Fund Indices®
The Hennessee Hedge Fund Indices® are calculated from performance data reported to the Hennessee Group by a diversified group of over 1,000 hedge funds. The Hennessee Hedge Fund Index is an equally weighted average of the funds in the Hennessee Hedge Fund Indices®. The funds in the Hennessee Hedge Fund Index are derived from the Hennessee Group’s database of over 3,500 hedge funds and are net of fees and unaudited. Past performance is no guarantee of future returns. ALL RIGHTS RESERVED. This material is for general information only and is not an offer or solicitation to buy or sell any security including any interest in a hedge fund.