The Credit Suisse/Tremont hedge fund index fell by 1.3 per cent this May, demonstrating poor hedge fund performance, with the current crisis in the emerging markets combined with global market volatility taking its toll.
The index, which tracks the performance of 421 hedge funds, recorded the largest monthly fall since October 2005, when a drop of nearly 1.5 per cent was seen.
However this was the first time that the index has fallen all year, with hedge funds still appearing to provide good returns for their investors in the long term – the index shows a 6.4 per cent rise for the first five months of 2006.
Analysts have blamed a combination of factors for hedge funds' relatively poor May performance, including global markets characterized by inflation fears and further increases in interest rates.
Hedge funds investing in emerging markets performed the worst over the month, after stocks saw sharp falls in value.
Robert Schulman, chief executive of Tremont, commented: "With signs that the Federal Reserve would raise interest rates to contain inflation, emerging markets suffered as investors shunned riskier investments resulting in the worst decline of emerging market assets since 1998."