Standard & Poor’s reported that its hedge fund index was up 1.9 percent in the first quarter, beating the S&P 500 equity index’s 1.3 percent increase. However, in March alone, the hedge fund index showed an unusually close correlation with equity market performance, ending the month down 0.12 percent, mainly due to increased geopolitical concerns and volatility in the equity markets, S&P said.

S&P’s event-driven sub-index (which includes distressed debt, merger arbitrage and special situations hedge fund strategies) was down 0.21 percent in March. The widening credit spreads in the wake of the Madrid bombings hurt the distressed debt funds, while tight spreads in the merger arbitrage realm offset the advantage of higher M&A deal flow in March.

The only sub-index to show a gain in March was S&P’s Directional/Tactical Index, which was up 0.45 percent. Currency and metals gains by macro traders were offset by reversals in fixed income and currency cross positions by managed futures funds, while the equity long/short hedge funds benefited slightly from a net long exposure to the rising Japanese market.

Venturing Forth
Meanwhile, another favorite of alpha aficionados, venture capital, continued to gain momentum in the first quarter. Thirteen venture-backed companies raised $2.72 billion through IPOs in that period, the most money raised since the third quarter of 2000, according to Thomson Venture Economics, a data vendor, and the National Venture Capital Association (NVCA), a trade group. This was more than double the previous quarter’s total of $1.05 billion.

One IPO raised the lion’s share of the funds in the first quarter. Semiconductor Manufacturing International, backed by Walden International, New Enterprise Associates, Doll Capital Management, Oak Investment Partners and Shanghai Industrial Holdings, raised $1.8 billion.

Thomson and the NVCA report that there were 50 venture-backed companies in registration with the Securities and Exchange Commission at the beginning of April. This pipeline of transactions bodes well for funds—and investors—seeking liquidity.