October 8, 2007 – New York, NY – Hennessee Group LLC, an adviser to hedge fund investors, today announced that the Hennessee Hedge Fund Index advanced +2.26% in September (+10.16% YTD), while the S&P 500 advanced +3.58% (+7.67% YTD), the Dow Jones Industrial Average increased +4.03% (+11.48% YTD), and the NASDAQ Composite Index rose +4.05% (+11.85% YTD). The Lehman Aggregate Bond Index advanced +0.76% (+3.85% YTD).
“Hedge funds experienced yet another good month in September, as liquidity in the market improved allowing most strategies to post positive returns,” said E. Lee Hennessee, Managing Principal of Hennessee Group. “The year is shaping up to be one of the best years for long/short equity strategies in quite awhile, although arbitrage strategies have faced some difficulties.”
The Hennessee Long/Short Equity Index advanced +2.36% in September (+10.53% YTD). After reaching a low in mid-August, U.S. equity markets have posted an impressive rally, with the Dow rallying over +8% from August 16 to the end of September. The environment for long/short equity strategies has improved in 2007 relative to previous years, as there has been more differentiation between sectors in comparison to each of the past four years. Furthermore, many funds have reported positive results in short portfolios for the year, despite the impressive equity returns.
“While equity markets have quickly rebounded to new highs, credit markets have failed to recover the entirety of losses suffered over the summer,” said Charles Gradante, Managing Principal of Hennessee Group. “This may be indicative of fundamental problems which the equity markets are overlooking. Typically, problems in corporate credit have resulted in losses in equities, as happened in 1990 and 2002.”
The Hennessee Arbitrage/Event Driven Index advanced +1.19% in September (+7.10% YTD). While credit strategies posted positive returns, they failed to generate the impressive returns of equity strategies, as the credit markets continued to absorb the overhang of debt issuance associated with leveraged buyout activity. The Hennessee Distressed Index increased +0.61% for the month (+7.75% YTD). Convertible performance improved after a sell-off during the previous three months, as the Hennessee Convertible Arbitrage Index advanced +1.80% in September (+3.77% YTD). Merger arbitrage also continued to recover after difficulties throughout the summer, as the Hennessee Merger Arbitrage Index advanced +1.26% (+9.22% MTD). Spreads on most LBO deals tightened, as the financing environment began to improve for most deals.
The Hennessee Global/Macro Index advanced +3.04% in September (+12.93% YTD), as global equity markets, especially emerging markets, posted gains. International equity funds outperformed their counterparts in the U.S. as the Hennessee International Index advanced +4.23% (+16.06%). Macro funds also posted solid gains as the Hennessee Macro Index rose +4.19% (+10.06% YTD). The dollar declined against most currencies, while gold rose 11% to end at $735 per ounce and crude oil reached $83 per barrel during the month. The yen carry trade again posted gains as the yen fell against most currencies, with the exception of the dollar, and risk premiums declined in most asset classes.
“The strong economic growth outside of the U.S., particularly in Asia, is having a pronounced effect on commodity prices,” continued Mr. Gradante. “The inflationary effect of higher commodity prices coupled with the weakness in housing, consumer spending, and the dollar is increasing the risk of a stagflation scenario. Furthermore, gold’s rally from $650 in August to $735 in September is a leading indicator of inflationary forces.”
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.
