May 9, 2008 – New York, NY – Hennessee Group LLC, an adviser to hedge fund investors, today announced that the Hennessee Hedge Fund Index advanced +2.00% in April (-1.95% YTD) while the S&P 500 advanced +4.75% (-5.65% YTD), the Dow Jones Industrial Average rose +4.54% (-3.36% YTD), and the NASDAQ Composite Index advanced +5.87% (-9.02% YTD). Bonds fell slightly, as the Lehman Aggregate Bond Index declined –0.21% (+1.95%).
“Hedge funds lagged the overall markets in April, as is expected given the recent surge in equities,” said E. Lee Hennessee, Managing Principal of Hennessee Group. “That said, most managers are fearful of a recession, as conversations have changed from whether there will be a recession to how deep and prolonged it will be.”
The Hennessee Long/Short Equity Index advanced +2.02% in April (-2.92% YTD), as equities continued to advance following a sharp rally subsequent to the buyout of Bear Stearns in March. Still, most long/short equity funds remain conservatively positioned, believing that the financial and housing crisis of the past nine months will likely translate into substantially slower economic growth going forward. Furthermore, most believe that sell-side earnings estimates are generally high for the remainder of 2008.
“The Hennessee Group is concerned about the conditions in the Dutch auction rate securities market,” said Charles Gradante, Managing Principal of Hennessee Group. “A seminal event is developing. Sellers have continuously overwhelmed buyers, causing widespread auction failures for the first time in 25 years. Banks, which normally provide liquidity during periods of supply/demand imbalances, are not doing so, adding to the list of concerns about bank balance sheets. Hedge funds are looking at opportunities in this market that are well collateralized.”
The Hennessee Arbitrage/Event Driven Index advanced +1.42% in April (-1.39% YTD). The Hennessee Distressed Index rose +1.28% in April (-1.55% YTD). Despite the bankruptcy filings of several airlines and retailers, high yield credit spreads tightened substantially from 8.2% to 6.9% over Treasuries. Most credit managers believe that defaults will continue to increase, high yield debt will likely continue to sell off and, as such, are holding high levels of cash. The Hennessee Merger Arbitrage Index advanced +1.87% in April (-0.21% YTD). Merger spreads tightened as a result of reduced volatility in the equity markets and the more accommodating credit markets provided better financing options for LBOs and cash takeovers. The Hennessee Convertible Arbitrage Index advanced +0.60% in April (-1.55% YTD). Credit related gains were offset by volatility related losses, as the VIX declined from 25.6 to 20.8.
“Spreads on oil contracts, which were wide and are now tightening, indicate speculators are topping out,” continued Mr. Gradante. “Just three months ago, oil was at $86. The 50% run-up has a lot of speculation in it.”
“Hennessee Group’s research indicates that Brazil’s three month rate of 11.6% continues to attract money flows, while the real is expected to hold its own against the dollar,” commented Mr. Gradante. “The real is up 16.7% versus the U.S. dollar in the last twelve months and Standard & Poor’s recently upgraded Brazilian debt to investment grade.”
The Hennessee Global/Macro Index advanced +2.23% in April (-1.52% YTD). International equities rose along with those in the U.S., as the MSCI EAFE Index advanced +4.95% (-5.06% YTD). Returns were the strongest in the emerging markets in comparison to more developed markets. Performance for international long/short equity funds was similar to that of U.S. long/short equity funds, as the Hennessee International Index advanced +2.60% (-1.68% YTD). The Hennessee Macro Index advanced +1.57% for the month (+3.17% YTD). Commodities resumed their recent surge, as oil prices rose to $120 per barrel. The lone exception was gold which declined from $904 to $867 during the month, which many believe to be a seasonal adjustment in demand.
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.