Hedge funds as measured by the HFR indices suffered with the overall market decline with only RV strategies being able to take advantage of the higher volatility environment. In general, the equity hedge fund declines were consistent with their longer-term betas (approximately .3 to .6). The outliers for the month were the event driven, special situations, macro and systematic CTAs indices. The year-to-date returns show significant dispersion with equity hedge fund indices generally positive while special situations, systematic CTAs, and event driven indices falling between -2.50 and -3.75 percent.

There is no way around the fact that hedge fund performance was not pretty. The change in volatility and equity price reversal whipsawed managers, but we are early in the year and the returns are within expected tolerances if we convert annualized volatility into a two-month standard deviation. These periods show greater intra-strategy manager dispersion. There are clear differences in manager skill. This offers an opportunity to reset allocations based on the ability of managers to weather financial shocks.