Credit Suisse/Tremont Hedge Fund index expected to be down 0.45% for February

By Susanna Moon

Chicago, March 9 - The Credit Suisse/Tremont Hedge Fund index will finish down 0.45% in February based on 59% of assets reporting, according to Credit Suisse Index Co., Inc.

Volatility in global equity markets was fueled by an adverse feedback loop between the financial sector and the economy in February, creating opportunities for hedge funds to capitalize on market swings, according to a press release.

The Royal Bank of Scotland in the United Kingdom, American International Group, Inc. in the United States and UBS in Switzerland all posted the highest corporate losses in recent times for their respective countries, Credit Suisse said.

Hedge funds continued to decouple from equity markets and outperformed the MSCI World index by 10.04% in February and by 17.9% for the year to date. Credit Suisse said this can be attributed in part to many hedge funds taking short positions, defensively positioning themselves with reduced net exposures to equity markets, tactically harvesting market volatility and being less constrained by the deleveraging process that hamstrung some managers in the fourth quarter of 2008. The Dedicated Short Bias strategy looks to be the biggest winner for the month with an estimated return of 4.09%, the company said.

Bond markets saw an issuance of $300 billion of investment-grade paper in January and February, one of the largest issuances in a two-month period. Capital markets may be picking up the strain of financing from beleaguered banks, the release said.

Hedge fund managers were generally long on two-year Treasuries and added to their net short positions in 10- and 30-year Treasuries in anticipation of the bearish steepening of the U.S. yield curve.

Convertible Arbitrage showed solid gains following a strong January performance, with continued liquidity and increasing demand. Global Macro managers had mixed performance, although a range of themes were profitable, including divergence trades within European sovereigns, expressed largely through credit default swaps and Eastern European currencies, as well as the steepening of the U.S. yield curve.

Credit Suisse said its researchers believe markets could stabilize by mid-year and possibly lead to a tepid recovery in late 2009 or early 2010. They analyzed recent events affecting the markets, such as President Obama's $787 billion economic stimulus package combined with bank rescue plans and other initiatives. The stimulus pushes estimated nominal disposable income growth in 2009 above zero in the United States.

Current estimates are based on 59% of assets reporting, and final February performance will be published March 16 on Bloomberg and online at hedgeindex.com.

Credit Suisse Tremont Index LLC is a New York-based joint venture company of Credit Suisse Index Co., Inc., a subsidiary of Credit Suisse Co., Inc., and Tremont Group Holdings, Inc.

Returns

Index/category February January

Credit Suisse/Tremont Hedge Fund index Negative 0.45% 0.80%

Convertible Arbitrage 2.93% 7.43%

Dedicated Short Bias 4.09% 2.02%

Emerging Markets Negative 1.12% 0.66%

Equity Market Neutral 0.20% 1.91%

Event Driven Negative 1.26% 0.65%

Distressed Negative 1.72% 1.03%

Event Driven Multi-Strategy Negative 1.11% 0.26%

Risk Arbitrage 1.29% 0.44%

Fixed Income Arbitrage 1.03% 0.38%

Global Macro 0.18% 2.54%

Long/Short Equity Negative 1.26% Negative 1.17%

Managed Futures Negative 0.12% Negative 0.53%

Multi-Strategy Negative 0.07% 1.59%

MSCI World Negative 10.49% Negative 8.85%

Barclays Capital Aggregate Bond index Negative 2.23% Negative 3.27%

DJ AIG Commodities index Negative 4.46% Negative 5.38%

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