Olympia Research

HEDGE FUNDS12 MONTHS AFTER SEPTEMBER 15:EMERGING FROM THE WRECKAGE

September 2009

Olympia Research – September 2009

Hedge Funds 12 Months After September 15:Emerging From The Wreckage

CONTENTS

IntroductionPart 1:Major industry trendsPart 2:Performance review Part 3:Outlook for remainderof 2009Conclusion Appendix

Summary

•

Hedge funds have had

positive net inflows

overthree consecutive months since the end of May. Atthe same time, there are still a high number of funds that are closing and only very few newlaunches.

•

We have

not seen

any significant changes in theliquidity terms and the fees taken by hedge fundsduring H1 2009. We think that new liquidityterms and lower fees will only apply to newlycreated funds.

•

Following the Madoff scandal, hedge fundmanagers have put

operational risk

at theforefront of their concerns internally.

•

During 2009, hedge funds have delivered theperformance in line with investors’ expectations.As of July 31

, the

HFR Global Hedge Fund Index isup 7.2%.

•

Strategies that performed well in 2008 (GlobalMacros and CTAs) are

under-performing

in 2009.

•

Hedge funds have profited from the equity andcredit market rally but their

leverage remains wellbelow

its historical high.

•

There has been a

significant reversal in theranking of Fund of funds

between 2008 and 2009.Last year’s winners are lagging their peers in2009.

•

Risky assets have rallied significantly since Marchdue to both an improvement in the economicsituation and massive liquidity flows. Althoughwe cannot rule out continuation of the rallyduring Q3 2009, we believe asset prices overshotthe growth potential of the economy.

•

With the stabilization of the financial system,allocating to hedge funds again provides investorswith good