Fund of hedge fund managers outperformed UK and Overseas Equity pooled funds

LONDON, June 5, 2008 — Statistics released today by BNY Mellon Asset Servicing show that pooled fund of hedge funds failed to achieve positive returns during the first quarter of 2008. Over this period the median return for these funds was -4.0, the lowest return that we have seen for these funds since BNY Mellon Asset Servicing started to measure pooled fund of hedge fund performance in 2003. This is the third consecutive quarter that pooled fund of hedge funds failed to achieve a quarterly positive return.

Despite seeing a relatively weak performance during Q1 2008, pooled fund of hedge fund managers still outperformed other key investment sectors including UK and Overseas Equity pooled funds, which returned -9.7% and -9.5% respectively. Pooled fund of hedge funds were however, outperformed by Property (-3.5%), UK Bonds (-1.1%) and Cash (1.3%).

Commenting on the results, Alan Wilcock, Performance and Risk Analytics Manager at BNY Mellon Asset Servicing, said: "Along with one of the worst starts ever to a year for the equity markets, pooled funds of hedge funds also suffered from negative returns in January and March, producing the lowest quarterly return we have seen."

Despite a shaky start to the year, some stronger results in earlier periods meant that fund of hedge funds did make some small gains over a one year period with a median return of 1.7%. Pooled fund of hedge fund managers also outperformed key sectors over this period, in particular UK and Overseas Equity funds which returned -8.8% and -1.9% respectively. Over longer term periods, pooled fund of hedge fund results were even stronger, and over three and five years the median fund returned 7.5% p.a. and 8.2% p.a. respectively.

Over three years to 31 March 2008, pooled fund of hedge funds were outperformed by both UK (8.8% p.a.) and Overseas Equity (10.6% p.a.) pooled funds. BNY Mellon Asset Servicing's analysis does however show that the volatility of returns over this period (as measured by the median standard deviation) was significantly lower for fund of hedge fund managers. The standard deviation for pooled fund of hedge funds was 5.3% p.a., compared with 10.1% p.a. and 10.9% p.a. for UK and Overseas Equity funds. Over this period, pooled fund of hedge fund managers achieved an outperformance of 4.1% against UK Bond pooled fund managers, with broadly similar levels of risk; the median standard deviation of these funds was 4.6% p.a.

Each quarter, BNY Mellon Asset Servicing publishes results from its pooled fund of hedge funds universe which consists of multi-strategy funds of hedge funds. These offer a route into alternative investments for UK pension schemes and a means of generating returns, whilst reducing overall fund risk through diversification. Hedge fund strategies can be broadly classified as directional, event driven and non-directional. Directional strategies seek to forecast and exploit broad market trends, while event driven strategies seek to anticipate and exploit events such as mergers or corporate restructurings. Non-directional strategies generally seek to take advantage of pricing inefficiencies.

As at 31 March 2008, the average fund of hedge funds held 48.4% of its assets in directional strategies, 13.1% in event driven strategies, 17.2% in non directional strategies and 21.4% in other (unspecified) strategies and cash.

BNY Mellon Asset Servicing's fund of hedge funds universe currently covers 19 separate funds with over £4.9 billion in assets.

BNY Mellon Asset Servicing offers clients worldwide a broad spectrum of specialised asset servicing capabilities, including custody and fund services, securities lending, performance and analytics, and execution services. BNY Mellon Asset Servicing provides services through The Bank of New York, Mellon Bank, N.A. and other related companies.

The Bank of New York Mellon Corporation is a global financial services company focused on helping clients manage and service their financial assets, operating in 34 countries and serving more than 100 markets. The company is a leading provider of financial services for institutions, corporations and high-net-worth individuals, providing superior asset management and wealth management, asset servicing, issuer services, clearing services and treasury services through a worldwide client-focused team. It has more than $23 trillion in assets under custody and administration, more than $1.1 trillion in assets under management and services $12 trillion in outstanding debt. Additional information is available at bnymellon.com.