Best of breed

Hedge Funds Review honoured Europe's most successful single hedge funds managers and hedge fund groups in July, in London, at its annual single-manager European Performance Awards. The envelope please, and the winners were…

Yet again, the recipients of Hedge Funds Review's European performance awards have brought together the best of Europe's single hedge fund managers.

judging process

The judges decided winners for numerous categories, and found decisions difficult due to the calibre of shortlisted funds. The four judges - Tushar Patel from HFIM, Alexander Mearns from Eurekahedge, Ian Morley from Dawnay, Day Brokers and Hedge Funds Review's David Walker - entered the process by screening the European funds on Eurekahedge's database for January to December 2006 (except for new launches).

Shortlists were then drawn up for each category.

Metrics of Sharpe, annualised returns and returns/drawdowns were derived for each fund and an aggregate ranking drawn up from these three. It was this which determined the top funds on the long list in each category. However, standard deviation (upside and downside), drawdown data and positive months data was also generated for all the funds' lifespans.

Judges then discussed the quantitative data, as well as the firms' investment process and methodology, funds under management and each applicant's approach to investment. The best-returning fund did not always take the award.

And the winners are...

While emerging markets as a strategy displayed a 12-month return of 17.57% in 2006, the top hedge funds on the Eurekahedge database did markedly better. As was the case last year, Russia featured heavily on pure returns on the long-list. And a Russian fund took the top prize, Equinox Finance Management's Russian Opportunities Fund Ltd. Its 107.56% return in 2006, followed by 36% to April's figures in 2007, according to Eurekahedge, caught the judges' eyes, as did the fact these returns were generated with assets under management of around $150m, so a somewhat sizeable amount.

first among equities

While some debate has surrounded whether all emerging markets funds are hedge funds, the second category took in equity long/short funds, excluding those focusing purely on emerging markets.

The longlist included stalwarts of the industry, with funds from GAM, Martin Currie, Wermuth AM and Polar Capital, among many others. The shortlist also covered a wide range of markets, from Asia Pacific to Europe to globally-focused portfolios, all allowing skilled managers to produce healthy risk-adjusted returns.

Concentric European Fund took the prize home, though, with a 55.61% return in 2006, using around $700m assets by the middle of 2007. Concentric was not the highest returning fund, with a Sharpe ratio of 2.91 and worst month of just -1.12%.

The judges then turned their attention to those managers balancing longs with shorts - equity market-neutral - a category some would regard as the 'purist hedge fund' category. Old Mutual Asset Managers stood out in thie category with two funds shortlisted, however Gulf International Bank, with its Falcon Relative Value Fund gave their competitors a run for their money. Ultimately, however, OMAM took it, for their Old Mutual Global Equity Market Neutral Fund. As with all funds being judged, the dollar class of OMAM's fund was the one under scrutiny.

The next, fixed-income category displayed a breadth of instrument usage and innovative trading. From Cambridge Place IM's Structured Credit Fund to Morley G7 Income Fund and Spinnaker Global Opportunity, big names were well represented. However, it was Wharton AM that took it, with Y2K Finance Inc. Returns for 2006 were a very healthy 19.62%, with a Sharpe of 4.32, which placed Y2K highly on all the metrics.

futures perfect

Perhaps, not surprisingly, managed futures funds represented on the longlist had impressive, albeit often volatile returns. However, judges looked beyond the returns to the control of volatility, one which gave investors reason to sleep at night. The DISCUS Managed Futures Program won the award, with acreditable returns in 2006 of 10.12% on annualised volatility of 6.96%.

Capital Fund Management's portfolio fought off the ever-popular Winton Futures Fund (with 17.83% returns), and others such as Valu-Trac Strategic Fund and the $1.4bn Aspect Diversified Fund, another stalwart of the industry, since 1998.

biggest fish in a small macro pond

Global macro also proved itself capable of producing attractive returns in 2006, with groups such as North AM producing 38.71% in 2006, and Wermuth AM's Greater Europe Fund returning its investors 33.8%. Again, however, following the mantra of risk-adjusted returns, judges also took into account risk measures, and Auriel Global Macro Fund was the winner, with 24.26% returns, volatility of 11.82% and a creditable year-to-date 2007 return of 6.87%. On the three main metrics mentioned in the judging process Auriel had ranked fourth. As the category included FX funds IKOS Currency Fund was also shortlisted, as was Maple Leaf Macro Volatility Fund and Abraxas Fund.

energetic performance

In the energy and natural resources category, one fund stood far ahead of the following pack. This was not to say RAB Energy with 34.94% in 2006, or Wessex Natural Resource Fund (26.61%) or Ocenaic Energy Fund (11.05%) were by any stretch of the imagination, slouches. The winner displayed an annualised volatility of 30.21%, so not a fund for the feint of heart. But, with $1.8bn in assets under management since its July 2003 launch, its investors are clearly happy with Philip Richards' eclectic mix of stocks and assets. RAB Special Situations is somewhat of an industry icon, and it won the category.

event-driven

The event-driven category was next, bringing entrants from Coriolis, Polo Capital and Spinnaker, to name a few. The M&A portion of the category has had a good time of late, and the distressed debt portion is widely tipped by some to be awash with opportunities later in 2007, and going into 2008. It was pleasing to see shortlisted funds had made their returns with some weighty assets - TT Event Driven Fund had produced 16.69% with volatility of 8.16% in 2006, and both Polo Fund (26.34% in 2006, with $229m) and Coriolis Capricorn Fund (12.86% with $181m) deserved their shortlisted status. But, it was the largest portfolio - by a factor of at least three, in most cases over its shortlisted peers - that took the prize: Spinnaker Global Emerging Markets Fund. Convertible arbitrage may best be remembered for a horror spell a few years back, but IIU continue to ignore this by producing 12.76% in 2006, while Kallista CB Arbitrage also hit double digits with 10.79%. AXA Vega Fund rounded out the shortlist. IIU it was who won it (again) with the the returns made on annualised volatility of 5.9%.

multi-strategy

The final strategy category was multi-strategy, where RAB Capital's RAB Northwest China Opportunities Fund (brought into RAB's fold by its acquisition earlier this year in Asia) was joined by Headstart Global Fund Lionhart Global Appreciation Fund (Global Segregated Portfolio) and their Aurora Fund SPC, GLC Diversified Fund and BAREP Global Credit. The latter won it, with a $644m portfolio generating 16.95% on volatility of just 4.13% and a worst month of just -0.51%.

small ones are more juicy

The smaller funds generated a more exclusive shortlist, with Lionhart Aurora Fund SPC - Venture Segregated Portfolio joining Lindsell Train Global Media Fund, in a duo that produced 30.93% and 25.57% in 2006, respectively. Lindsell Train took it.

If one ever harboured concerns that talent was thinning out in the hedge fund industry, to allay any concern, one need only look at the new launch long-list for the awards. JO Hambro Investment Management ended up taking the silverware with its Tai Chi Fund returning an eye-catching 44.99% on volatility of 13.31%, roughly that of global equities.

old hands, new prizes

The awards then moved into judging by time-spans, starting with the three years ending on 31 December 2006. While all funds on the shortlist clearly impressed the judges, one stood out - its 74% total returns was hard to miss. Polar Capital's European Forager Fund fended off Millennium Global High Yield (a past winner), Spinnaker Global EM Fund, SR Phoenicia, Russian Opportunities Fund and Stratus Fund, to take the prize.

Over 10 years, the shortlist brought to the fore some of the industry's leading hedge funds from the industry's leading players - Man, Brummer & Partners, Sloane Robinson and Tell Investments, to name but a few. The breadth of markets the funds have succeeded in over a full decade was tribute to the long-term strength of managers. And the winner? Sloane Robinson, again, producing SR Global Fund (Class G) Emerging, 28.68% annualised - or 1144% over 10 years - on annualised volatility of 19.15%.

head of the class

The best-group category comprised a subjectively compiled shortlist, drawn together by the judges. The shortlist was long, reflecting the judges' feeling that many groups had made positive contributions to the industry's standing in the public eye in 2006, broadened endeavour in their own investment pursuits and generally advanced the cause of hedge funds.

Absolute Capital Management was on the list again after appearing in 2006, and RAB Capital joined us again. Possibly slightly better known for its fund of hedge funds operations, GAM rounded out the shortlist, with a breadth of product offering and operational infrastructure that impressed the judges.

The judges found it difficult to split between the groups but in contrast to previous years came down on one side of the fence - and it was RAB Capital's.

We would like to extend our thanks to everyone who came to the awards, winners and shortlisted, and to the industry for continuing to provide the judges with such difficult decisions to make!