The good news is that hedge fund performance stabilised over the summer after painful losses in May and June. The latest performance gains have helped most strategies remain in positive territory for 2010. Yet in the minds of some investors, this bodes poorly for the attractiveness of allocating to hedge funds. It is probably true that the days of regular 15%-plus gains with volatility kept in single digits for plain vanilla long/short equity strategies are at an end for now. Instead, for most funds the new paradigm is one of single digit returns with tight risk controls amid a highly correlated landscape of range bound trading punctured by bursts of extreme volatility. In this environment, managers need to be superb risk managers to protect investor assets and outstanding traders, perhaps in several markets, to generate performance.

Several firms with these attributes came to the fore in our Europe50 survey of the continent’s leading firms conducted in association with Newedge Prime Brokerage Group. Brevan Howard Asset Management and BlueCrest Capital Management have faired extraordinarily well in responding to tough market conditions and generating returns across a number of strategies as different as rates, currencies, futures and emerging markets. The demand among investors for matching risk management expertise with true alpha generation has seen both firms make substantial gains in the client funds they manage.

The Europe50 survey also found that managed futures operators – Man AHL, Winton Capital Management and Netherlands-based Transtrend – retained three slots in the top 10 by assets under management. Though commodity trading advisor performance as a whole has trended downwards for much of the past year, the strategy’s record through the credit crisis in risk management and performance generation continues to attract investors. Meanwhile, Swedish firm Brummer & Partners mixed managed futures, fixed income-relative value and long/short equity to strong effect, nearly doubling assets under management and rising to 9th in the survey. Long/short equity still has its backers, however, with Lansdowne Partners rising to 5th in the Europe50 on strong gains in funds managed, while GLG Partners, down to 8th, underscored the value of a strong equities franchise with its pending $1.5 billion acquisition by Man Group.

Developments in the UCITS Hedge sector also made an impact on the Europe50. Several leading investment managers in the survey boosted AUM substantially with UCITS products, among them, BlackRock and Dexia Asset Management. Elsewhere in this issue, we take a close look at the new Prima multi-strategy UCITS fund of funds recently unveiled by Credit Suisse. In addition, we took advantage of the 10th anniversary of hedge fund investing at Martin Currie Investment Management to learn about this Scottish manager’s approach to global equities investing and we congratulate the firm on its inaugural appearance in the Europe50. Other highlights in this issue include a look at Verno Investment Management’s launch of one of Russia’s first long/short equity funds and a visit to Louis Capital Markets to discuss its platform for macro clients. Finally, Dr. Tim O’Brien looks at the psychology of elite market performance.

Bill McIntosh, Editor
bill.mcintosh@thehedgefundjournal.com