Hedge Fund Industry Snapshot - Citigroup · (September 2012 +$21.2 billion). Year to date performance gains stand at +$82.1 billion compared to -$31.92 billion over the same period

Hedge Fund Industry SnapshotData as of October 2012

AmericasNew York: +800 773-2889 San Francisco: +415 617-8554

Citi Prime Finance | Market Commentary

Strictly Private and Confidential

www.citigroupgcib.com | Report Date: November 2012

EMEAEMEA: +44 0 207-986-0822

Asia PacHong Kong: +852 2501-8356Tokyo: +813 6270-3165Singapore: +65 6432-1223Australia: +612 8225-6424

This report has been prepared by members of Citi Prime Finance and is not a research report. This report does not constitute advice on investments or a solicitation to buy or sell any financial instrument. Please see final pages for Market Commentary Disclosures.

Table of Contents

Monthly Highlights 1

Hedge Fund Industry Overview AUM, Performance Industry Flows

2

Hedge Fund Stats by Strategy 4

Performance at a Glance Hedge Fund Performance Citi HARP vs. HFRI Fund of Fund Performance Securities Market Performance

5

Short Flows Data US Short Sales & Short Cover by Sector US Short Sales & Short Cover by Industry Group

8

Hedge Fund (Fund Level) Profiles Fund Structure Fund Analytics

11

Risk vs. Return Metrics 13

By Strategy Performance vs. Respective Benchmark(s) Leverage Profile Hedge Fund Performance by Size Hedge Fund Performance by Age

14

Firm Disclaimers and Market Commentary Disclosures 25

Contacts 26

HighlightsPerformance, AUM & Flows Composite hedge fund performance, equal-weighted across funds, was down in October 2012 with performance ranging from -0.50% to -0.20%. Returns

were lower than the previous period (September 2012 +0.20% to +1.21%). Year to data performance gains range from +2.97% to +5.77% compared to -7.69% to -3.52% over the same period in 2011.

Hedge fund strategy wise, top performing strategies in October 2012 include Distressed +1.36%, Emerging Markets +1.00%, and Fixed Income Arbitrage +0.57%. The lowest performing strategies include CTA/Managed Futures -2.69%,Global Macro -2.69% and Convertible Arbitrage at -0.50%.

According to eVestment|HFN, the estimated industry assets decreased for October 2012, finishing the month down -$29.54 billion. Decreases were mostly attributed to net negative investor flows of -$17.76 billion while negative performance accounted for -$11.78 billion. Industry AuM remains below its $2.94 trillion June 2008 peak.

Net negative investor flows of -$17.76 billion for October 2012 marks the fourth period of negative flows for 2012. October net flows were lower than the previous month, which experienced +$8.41 billion over the same period. Year to date investor flows now stand at +$22.61 billion compared to +$48.31 billion over the same period last year.

Fund Profiles Across the subset of hedge funds reporting performance and AUM, the monthly median performance for large single funds (>$500 million) was -0.2%,

medium single funds ($100–$500 million) -0.3% and small single funds (<$100 million) -0.3%.

Liquidity terms continued its consistent pattern from the recent reporting periods with October 2012 showing little changes to redemption notice periods with 67% of funds requiring 30 days or less notice for redemption. Across the entire subset of reporting funds, the majority (52%) required no lockup (43%) or less than 1 year lock up (9%).

Consistent throughout recent reporting periods, large funds ( >$500 million AUM) continue to hold a large portion of industry AUM (71%) compared to medium funds ($100–$500 million) at 20% and small funds (<$100 million) holding only 9%.

Leverage, Shorts and Futures Market Positioning On a global basis, we calculate gross leverage (as measured on a mean basis) at 1.71x in October 2012 versus 1.71x in September, and 1.74x in August.

Looking across both long leverage and gross leverage, the following strategies showed the highest uses of leverage: Global Macro (3.88x), Multi Strategy (3.77x), Equity Market Neutral (3.76x), and Convertible Arbitrage (3.49x).

Citi US short flows data included in this month’s report show decreased interest in the Consumer Discretionary and Information Technology sectors. These two sectors accounted for 30.47% of short executions and 27.81% of short covers in October versus 35.96% of short executions and 31.89% of short covers in September 2012.

In the latest reporting month large speculator net positioning (in Futures & Options) saw a rise in the net long position in the 10-Yr T-note futures contract to the largest it has been (as a percentage of total open interest) since early 2008.

1

Hedge Fund Industry: AUM, Performance

Source: eVestment|HFN; Hedge Fund Research, Inc., © 2012.

Source: HFR, eVestment|HFN.

Composite hedge fund performance, equal-weighted across funds, was down in October 2012 with performance ranging from -0.50% to -0.20%. Returns were lower than the previous period (September 2012 +0.20% to +1.21%). Year to data performance gains range from +2.97% to +5.77% compared to -7.69% to -3.52% over the same period in 2011.

Global equity markets posted sharp declines through mid-November, as investors discounted the results of the US Presidential election, the uncertainty surrounding the renewal of US tax incentives and continued uncertainty regarding the European banking and sovereign debt crisis. Equities declined across most sectors, market capitalizations and regions, with steepest losses across certain Technology and Utilities concentrations, small cap equities and Italy, Germany, Australia and China regions, in addition to US weakness. The US dollar gained against the Euro, British Pound Sterling and Japanese Yen, as US yields declined for the month across the maturity curve and high yield credit weakened.

Hedge fund strategy wise, top performing strategies in October 2012 include Distressed +1.36%, Emerging Markets +1.00%, and Fixed Income Arbitrage +0.57%. The lowest performing strategies include CTA/Managed Futures -2.69%,Global Macro -2.69% and Convertible Arbitrage at -0.50%.

According to eVestment|HFN, the estimated industry assets decreased for October 2012, finishing the month down -$29.54 billion. Decreases were mostly attributed to net negative investor flows of -$17.76 billion while negative performance accounted for -$11.78 billion. Industry AuM remains below its $2.94 trillion June 2008 peak.

Industry Performance: Oct-12/YTD

Monthly Industry AUM and PerformanceNote Pad

MSCI World Index: -0.6%; +12.9% YTD

MSCI EM Index: -0.6%; +12.8% YTD

S&P 500: -1.8%; +14.0% YTD

Citi US BIG Index: +0.19%; +4.1% YTD

S&P GSCI: -4.1%; +0.9% YTD

US Dollar Index: -0.02%; +0.5% YTD

HFN Country Indices Sept/YTD: – Brazil: +1.54%/+13.78%; India: -1.72%/+20.31%;

China: +0.81%/+2.55%; Japan: +0.47%/+3.36%

2

-2%

-1%

0%

1%

2%

3%

4%

2,350

2,400

2,450

2,500

2,550

2,600

Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12

Monthly Perform

ance (%)

Indu

stry

AU

M ($

bn)

AUM HFN EqWt HFR EqWt HFRX Wt

Oct-12 YTD 12

2.97%

5.77%

4.93%

-0.52%

-0.50%

-0.21%

-0.5% 1.5% 3.5% 5.5% 7.5%

HFRX Wt

HFR EqWt

HFN EqWt

Hedge Fund Industry: Change in Industry Assets

Source: eVestment|HFN.

Source: eVestment|HFN.

According to eVestment|HFN, industry assets for October 2012 decreased, finishing the month net negative at -$29.54 billion. Losses were mostly attributed to investor flows totaling -$17.76 billion while negative performance accounted for -$11.78 billion.

October 2012 marks the third month in 2012 in which industry assets decreased- the first since June. October 2012 performance losses of +$11.8 billion were off from the previous month (September 2012 +$21.2 billion). Year to date performance gains stand at +$82.1 billion compared to -$31.92 billion over the same period last year.

Net negative investor flows of -$17.76 billion for October 2012 marks the fourth period of negative flows for 2012. October net flows were lower than the previous month, which experienced +$8.41 billion over the same period. Year to date investor flows now stand at +$22.61 billion compared to +$48.31 billion over the same period last year.

Total industry AUM now stands at $2.55 trillion for October 2012 and is up +2.7% from $2.49 trillion in January 2012 and 5.9% from October 2011.

Composition of Change in AssetsSept-12 Amounts in ($ Billion)

Monthly Change in Industry Assets and Composition Note Pad

The Citi Prime Finance calculation for end-Oct gross leverage (as measured on a mean basis) was 1.71x, compared to recent months: Sept: 1.71x, Aug: 1.74x, and July: 1.73x

Gross leverage (mean): defined as sum of (LMV + abs SMV)/Net Equity

3

(75)

(50)

(25)

-

25

50

75

100

125


Chg

in In

dus

Asse

ts ($

bn)

Chg due to Performance Net Investor Flows Total Change in Indus Assets

$(17.8)

$(11.8)

(30) (20) (10) 0

Net Investor Flows

Chg due toPerformance

Hedge Fund Stats by Strategy

Note: Hedge fund data is self-reported; each calculation is based on the respective data from funds who have reported for the current period.Source: Citi Prime Finance.

Source: Citi Prime Finance.Source: Citi Prime Finance.

Source: Citi Prime Finance.

Hedge Fund Strategy Breakdown by Assets Hedge Fund Strategy Breakdown by Number of Funds

Hedge Fund Performance by Strategy Hedge Fund Leverage Ratios by StrategyGross Leverage (Mean): Defined as the sum of (LMV + abs SMV)/Net Equity

4

3.49

1.75

0.96

1.37

1.60

3.76

1.62

1.19

3.88

3.77

Convert Arb

Dedicated Short Bias

Distressed

Emerging Markets

Equity Long/Short

Equity Market Neutral

Event Driven

FI Arbitrage

Global Macro

Multi-Strategy

1.5%

19.4%

0.1%

1.1%

3.8%

21.8%

3.1%

9.2%

12.1%

16.5%

11.4%

Convert Arb

CTA/Managed Futures


Distressed

Emerging Markets

Equity Long/Short


Event Driven

FI Arbitrage

Global Macro

Multi-Strategy

1.5%

13.6%

0.3%

1.4%

7.7%

32.1%

5.2%

4.7%

10.9%

16.7%

5.8%

Convert Arb

CTA/Managed Futures


Distressed

Emerging Markets

Equity Long/Short


Event Driven

FI Arbitrage

Global Macro

Multi-Strategy

-0.10%

-2.69%

0.33%

1.36%

1.00%

0.32%

0.02%

0.19%

0.57%

-0.85%

0.21%

Convert Arb

CTA/Managed Futures


Distressed

Emerging Markets

Equity Long/Short


Event Driven

FI Arbitrage

Global Macro

Multi-Strategy

Monthly Performance by StrategyCTA/Managed Futures

Dedicated Short Bias Distressed

Equity Long/Short Equity Market Neutral Event Driven

FI Arbitrage Global Macro Multi-Strategy

Emerging Markets

Convertible Arbitrage

Source: Citi Prime Finance.Note: Hedge fund data is self-reported; each calculation is based on the respective data from funds who have reported for the current period.

Monthly Median

Trailing 60 Month Median

5

-4%-2%0%2%4%

12/30/20111/29/20122/28/20123/30/20124/29/20125/30/20126/29/20127/29/20128/29/20129/28/201210/29/2012-4%

-2%

0%

2%

4%

12 1 2 3 4 5 6 7 8 9 10

-8%-5%-3%0%3%5%

12 1 2 3 4 5 6 7 8 9 10-2%

0%

2%

4%

12 1 2 3 4 5 6 7 8 9 10

-6%-4%-2%0%2%4%

12 1 2 3 4 5 6 7 8 9 10

-5%

-3%

-1%

1%

3%

12 1 2 3 4 5 6 7 8 9 10-5%

-3%

-1%

1%

3%

12 1 2 3 4 5 6 7 8 9 10-4%-2%0%2%4%

12 1 2 3 4 5 6 7 8 9 10

-1%

0%

1%

2%

12 1 2 3 4 5 6 7 8 9 10-2%

0%

2%

12 1 2 3 4 5 6 7 8 9 10-2%

0%

2%

4%

12 1 2 3 4 5 6 7 8 9 10

Oct-12 Sept-12 Oct-11

-0.1% 0.8% 1.5%

0.54% 0.54% 0.87%


-2.7% -1.0% -1.2%

0.11% 0.19% 0.30%

Oct-12 Sept-12 Oct-110.3% -5.6% -6.2%

-0.43% -0.27% -0.16%

Oct-12 Sept-12 Oct-111.4% 1.2% 2.0%0.75% 0.22% 0.86%

Oct-12 Sept-12 Oct-111.0% 2.2% 3.1%0.57% 0.50% 0.92%


0.3% 2.2% 3.2%

0.41% 0.41% 0.55%


0.0% 0.4% 1.3%

0.36% 0.36% 0.50%


0.2% 1.4% 1.9%

0.38% 0.36% 0.76%


0.6% 1.1% 0.7%

0.67% 0.66% 0.70%


-0.9% 0.1% 0.7%

0.16% 0.20% 0.47%


0.2% 0.1% 1.0%

0.45% 0.50% 0.76%

Citi Liquid Hedge Fund Replicator (HARP)

Oct-12 Sep-12 Oct-11 YTD-12

Citi Harp -1.10% 1.01% 3.08% 4.35%

HFRIFOF -0.35% 0.87% 1.07% 3.06%

Citi HARP Index vs. Benchmark (monthly rolling)

Citi HARP is a liquid investable index, which aims at approximating the performance of the hedge fund sector

Source: Citi and Hedge Fund Research, Inc., © www.hedgefundresearch.comHFRIFOF Index is the HFRI Funds of Funds Composite Index

Annualized Performance:

Last 12-Month

Citi HARP Index

HFRIFOF

Annualised Return 2.30% 1.49%

Annualised Volatility 6.99% 3.58%

Sharpe Ratio 0.32 0.39

Correlation 87% -

The purpose of the Index is to approximate in broad termsthe performance of the hedge fund sector by achieving asimilarity between the pattern of the returns of the Indexand the pattern of the returns of a Benchmark - the HFRIFund of Funds Composite Index.

The Index contains weighted components. Thecomponents are a money market component and variousindex components. Each index component represents aclass of asset in which the hedge fund sector is assumedto invest: bond, commodity, equity and foreign exchange.

The weighting within the Index of each component isdetermined monthly. Every month, a multiple linearregression algorithm is used to identify the appropriateweighting.

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12

Citi HARP IndexHFRIFOF Index

Source: Citi Prime Finance; FactSet; Citigroup Index LLC.

US Equities(Large Cap vs. Small Cap)

Global Equities Developed vs. Emerging)

Fixed Income(High-Grade vs. High-Yield)

Commodities(US$ Performance)

7

-10%

-5%

0%

5%

10%

15%

20%

10/31/20128/31/20126/29/20124/30/201202/29/1212/31/1110/31/11-15%

-10%

-5%

0%

5%

10%

15%

20%

10/31/20128/31/20126/29/20124/30/201202/29/1212/31/1110/31/11

-3%-2%-1%0%1%2%3%4%5%6%7%

10/31/20128/31/20126/29/20124/30/201202/29/1212/31/1110/31/11-15%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

10/31/20128/31/20126/29/20124/30/201202/29/1212/31/1110/31/11

Oct-12 Sept-12 Oct-11 YTD-12MSCI World -0.6% 2.8% 10.4% 12.9%MSCI EM -0.6% 6.1% 13.3% 12.8%

Oct-12 Sept-12 Oct-11 YTD-12Citi US BIG Index 0.2% 0.1% 0.1% 4.1%Citi HY Bond Index 0.8% 1.3% 5.8% 12.0%

Oct-12 Sept-12 Oct-11 YTD-12S&P GSCI -4.1% -1.4% 9.7% 0.9%US-$ Index 0.0% -1.6% -3.0% 0.5%US 2yr Note 0.3% 0.2% 0.3% 2.7%

Oct-12 Sept-12 Oct-11 YTD-12S&P 500 -1.8% 2.6% 10.9% 14.0%RUS 2000 -2.2% 3.3% 15.1% 12.0%S&P Mid -0.8% 1.9% 13.7% 12.7%

US Securities Lending Sector Short Flows

Source: S&P (GICS); Citi US Securities Lending. Executions of shorts and short covers settled at Citi Prime Finance based on Market Value.

Short Sale Executions Short Cover Executions

Industrials11.58%

Health Care14.91%

Telecom Services3.10%

Utilities1.99%

Consumer Staples6.09%

Materials5.96%

Energy12.33%

Information Technology

15.79%

Consumer Discretionary

14.68%Financials

13.56%

Energy12.91%

Industrials11.50%

Telecom Services2.26%

Utilities2.03%

Materials6.85%

Health Care14.38%

Financials15.73%

Consumer Discretionary

14.32%Information Technology

13.49%

8

% Previous Month % Change From Sector Short Flows % Short Execution Short Execution Previous MonthInformation Technology 15.79 15.23 3.68Health Care 14.91 10.24 45.61Consumer Discretionary 14.68 20.69 -29.05Financials 13.56 13.44 0.89Energy 12.33 10.87 13.43Industrials 11.58 10.92 6.04Consumer Staples 6.09 7.89 -22.81Materials 5.96 7.00 -14.86Telecom Services 3.10 1.49 108.05Utilities 1.99 2.22 -10.36

% Previous Month % Change From Sector Short Flows % Cover Execution Short Cover Previous MonthFinancials 15.73 14.62 7.59Health Care 14.38 11.51 24.93Consumer Discretionary 14.32 17.44 -17.89Information Technology 13.49 14.44 -6.58Energy 12.91 13.43 -3.87Industrials 11.50 10.83 6.19Materials 6.85 8.54 -19.79Consumer Staples 6.53 5.68 14.96Telecom Services 2.26 1.69 33.73Utilities 2.03 1.82 11.54

Consumer Staples6.53%

US Securities Lending Industry Group Short Flows


Citi Industry Group Short Flows (% Short)

9

024681012

Com

mer

cial

Ser

vice

s&

Sup

plie

s Bank

s

Cap

ital G

oods

Com

mer

cial

Ser

vice

s&

Sup

plie

s

Con

sum

er D

urab

les

& A

ppar

el

Con

sum

er S

ervi

ces

Div

ersi

fied

Fina

ncia

ls

Ene

rgy

Food

& S

tapl

esR

etai

ling

Food

Bev

erag

e &

Toba

cco

Hea

lth C

are

Equ

ipm

ent &

Ser

vice

s

Hou

seho

ld &

Per

sona

lP

rodu

cts

Insu

ranc

e

Mat

eria

ls

Med

ia

Pha

rmac

eutic

als,

Bio

tech

nolo

gy &

Life

Rea

l Est

ate

Ret

ailin

g

Sem

icon

duto

rs &

Sem

icon

duct

or

Sof

twar

e &

Ser

vice

s

Tech

nolo

gy H

ardw

are

& E

quip

men

t

Tele

com

mun

icat

ion

Ser

vice

s

Tran

spor

tatio

n

Util

ities

Short Execution Short Cover

% Previous Month % Change From Industry % Short Execution Short Execution Previous MonthEnergy 12.33 10.87 13.43Health Care Equipment and Services 8.91 5.28 68.75Software & Services 8.74 8.34 4.80Capital Goods 8.24 7.65 7.71Pharmaceuticals, Biotechnology & Life 6.00 4.96 20.97Materials 5.96 7.00 -14.86Technology Hardware and Equipment 5.21 4.52 15.27Real Estate 5.19 3.27 58.72Retailing 5.13 4.60 11.52Consumer Services 3.66 3.05 20.00Diversified Financials 3.28 4.48 -26.79Telecom Services 3.10 1.49 108.50Food Beverage & Tobacco 3.09 3.93 -21.73Banks 2.91 3.26 -10.74Media 2.88 9.72 -70.37Transportation 2.40 2.19 9.59Consumer Durables & Apparel 2.21 2.21 0.00Insurance 2.18 2.43 -10.29Food & Staples Retailing 2.07 1.89 9.52Utilities 1.99 2.22 -10.36Semiconductors & Semiconductor 1.84 2.36 -22.03Commercial Services & Supplies 0.94 1.08 -12.96Household & Personal Products 0.93 2.07 -55.07Automobiles & Components 0.80 1.11 -27.93

% Previous Month % Change From Industry % Cover Execution Short Cover Previous MonthEnergy 12.91 13.43 -3.87Capital Goods 8.35 7.68 8.72Health Care Equipment and Services 8.17 4.84 68.80Software & Services 7.17 7.57 -5.28Materials 6.85 8.54 -19.79Pharmaceuticals, Biotechnology & Life 6.21 6.68 -7.04Real Estate 5.14 4.49 14.48Retailing 4.87 6.64 -26.66Diversified Financials 4.08 4.56 -10.53Banks 3.75 3.43 9.33Consumer Services 3.75 3.97 -5.54Technology Hardware and Equipment 3.74 4.56 -17.98Food Beverage & Tobacco 3.31 3.04 8.88Insurance 2.75 2.13 29.11Semiconductors & Semiconductor 2.58 2.31 11.69Media 2.36 3.11 -24.12Telecom Services 2.26 1.69 33.73Consumer Durables & Apparel 2.25 2.71 -16.97Transportation 2.16 1.90 13.68Utilities 2.03 1.82 11.54Food & Staples Retailing 1.89 1.34 41.04Household & Personal Products 1.33 1.29 3.10Automobiles & Components 1.10 1.00 10.00Commercial Services & Supplies 0.99 1.24 -20.16


US Securities Lending Short Flows SummaryCiti Short Flows: October 2012

10

Hedge Fund (Fund Level) Profiles

Source: Citi Prime Finance.Note: Hedge fund data is self-reported; each calculation is based on the respective data from funds who have reported for the current period.

On-shore/Off-shore

By Fund Size—$ AUM Redemption Frequency

By Fund Age—No. of Funds Lock-Up Domicile (by $ AUM)

By Fund Age—$ AUM Minimum Investment

Legal Status

Redemption Notice PeriodBy Fund Size—No. of Funds

11

Small:67%

Medium:23%

Large:10%

Small:9%

Medium:20%

Large:71%

<= 2 Yrs:16%

2-5 yrs:33%

5+ yrs:51%

<= 2 Yrs:4%

2-5 yrs:22%

> 5 yrs:74%

Under 7:17%

7-30 days:47%

30-60 days:20%

60+ days:14%

< 30 days:21%

Monthly:52%Qtrly:

23%

> Qtrly:4%

< 1 yr:9%

1 -2 yrs:45%

2+ yrs:3%

No L/U:43%

=<250 K42%

$250 K -$5 MM52%

$5+ MM6%

On-shore:31%

Off-shore:69%

Open-End:92%

Closed-End:8%

Amer:63%

EMEA:31%

ASIA:6%

Hedge Fund (Fund Level) Profiles

Source: Citi Prime Finance.Note: Hedge fund data is self-reported; each calculation is based on the respective data from funds who have reported for the current period. Median YTD performance is calculated from funds

reporting for all underlying periods. “n/m” = Not Meaningful.

Hedge Funds: Large (>$500 Million)

Hedge Funds: Medium ($100–$500 Million)

Hedge Funds: Small (<$100 Million)

12

Hedge Fund Age % of Total

MedianAUM

($MM)

Median Monthly Perform

Median YTD

Perform

Domicile:AmericasRegion

Off-Shore

Preferred Lock-Up /% of Total

PreferredRedemption

Notice/ % of Total

PreferredRedemptionFrequency/% of Total

Under 2 yrs 8% $205 -1.1% 0.2% 72% 84% 1-2 yrs / 75% 7-30 days / 52% Under 30 / 51%2-5 yrs 32% $213 -0.1% 5.4% 70% 73% 1-2 yrs / 66% 7-30 days / 41% Monthly / 49%Over 5 yrs 60% $228 -0.3% 6.1% 70% 65% No / 52% 7-30 days / 48% Under 30 / 57% Total 100% $218 -0.3% 5.9% 71% 68% No / 44% 7-30 days / 46% Monthly / 52%


MedianAUM

($MM)


Median YTD

Perform


Off-Shore


PreferredRedemption

Notice/ % of Total


Under 2 yrs 8% $30 0.9% 4.9% 87% 79% 1-2 yrs / 71% 7-30 days / 32% Monthly / 44%2-5 yrs 34% $31 0.8% 7.9% 64% 78% 1-2 yrs / 63% 7-30 days / 43% Monthly / 52%Over 5 yrs 58% $35 1.2% 5.8% 68% 65% No / 42% 7-30 days / 55% Monthly / 54% Total 100% $33 -0.3% 5.9% 67% 73% 1-2 yrs / 46% 7-30 days / 50% Monthly / 52%


MedianAUM

($MM)


Median YTD

Perform


Off-Shore


PreferredRedemption

Notice/ % of Total


Under 2 yrs 2% $1,204 -1.9% 4.1% 73% 98% 1-2 yrs / 76% 7-30 days / 69% Monthly / 56%2-5 yrs 20% $1,373 -0.2% 2.2% 72% 63% 1-2 yrs / 79% 60+ days / 31% Monthly / 40%Over 5 yrs 77% $2,095 -0.2% 3.6% 66% 72% 1-2 yrs / 41% 7-30 days / 32% Monthly / 47% Total 100% $1,680 -0.2% 3.4% 69% 69% 1-2 years / 51% 7-30 days / 34% Monthly / 48%

Convert Arb

CTA/Mgd Futures


Distressed Emerging MktsEquity L/S

Eq Mkt NeutralEvent Driven

FI Arbitrage

Global Macro

Multi-Strat

-15%

-13%

-10%

-8%

-5%

-3%

0%

3%

5%

8%

10%

0.5% 0.8% 1.0% 1.3% 1.5% 1.8% 2.0% 2.3% 2.5% 2.8% 3.0% 3.3% 3.5% 3.8%

Ret

urn

Standard Deviation

Risk and Return Metrics

Source: Credit Suisse Tremont.

Risk vs. Return (Oct 11–Oct 12)

Sharpe Ratios (July-94–Oct-12)

13


(0.43)

0.17 0.24 0.290.42

0.61 0.65

0.92 0.900.98

1.10

(0.6)

(0.4)

(0.2)

0.0

0.2

0.4

0.6

0.8

1.0

1.2

Dedicated ShortBias

Equity MarketNeutral

CTA/ManagedFutures

EmergingMarkets

FI Arbitrage EquityLong/Short

Convert Arb Multi-Strategy Global Macro Event Driven Distressed

Convertible Arbitrage

Source: Citi Prime Finance. Source: Citi ICG Analytics.

Source: Citi ICG Analytics; FactSet. Source: Citi Prime Finance.

Note: Hedge fund data is self-reported; each calculation is based on the respective data from funds who have reported for the current period.1. Universe and sample sizes may be small.

Hedge Fund Performance vs. Benchmark(Monthly, LTM)

Leverage Profile(Monthly, LTM)

Hedge Fund Performance by Age1 Hedge Fund Performance by Size1

14

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec YTDCiti-derived Median 2.8% 2.0% 3.2% -0.3% -1.5% 1.2% 0.5% 0.3% 0.8% -0.1% 8.9%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%


Oct-12 Sept-12 Oct-11 YTD-12Convert Arb -0.1% 0.8% 1.5% 9.0%CWB ETF 0.2% 2.7% 7.2% 11.8%

1.0

1.5

2.0

2.5

3.0

3.5

4.0


-2.3%

0.0%

0.1%

Under 2 Years

2 - 5 Years

Over 5 Years

0.3%

0.4%

-0.6%

Large($500+ MM)

Medium($100 - $500 MM)

Small(Under $100 MM)

Gross Leverage (Mean): Def ined as the sum of (LMV + abs SMV) / Net EquityLMV Leverage (Mean): Def ined as Long Market Value / Net Equity

CTA/Managed Futures


Source: Citi Prime Finance; FactSet.

Source: CFTC, Bloomberg, Citi Futures Perspective.Source: Citi Prime Finance.


Hedge Fund Performance vs. Benchmark Large Speculator Positions: CFTC Commitment Of Trader (Futures & Options) Report Net of Longs Less Shorts as Percent of Total Open Positions

Hedge Fund Performance by Age

Hedge Fund Performance by Size

Combined S&P/Weighted Mini S&P Contracts US 10-Year Treasury Futures

EuroFX Futures Gold Futures

Last Update: 10/30/12 +0.7% Last Update: 10/30/12 +4.8%

Last Update: 9/25/12 -11.7% Last Update: 10/30/12 +14.0%

15

-

5

10

15

20

25

Jan-07 Jan-08 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12

%

prior month-end

(5)

(4)

(3)

(2)

(1)

-

1

2

3

4


%

prior month-end

(8)

(6)

(4)

(2)

-

2

4

6

8

10


%

prior month end

(30)

(25)

(20)

(15)

(10)

(5)

-

5

10

15

20

25


%

prior month-end

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec YTDCiti-derived Median 0.3% 0.4% -1.1% -0.2% 2.1% -2.5% 2.0% 0.0% -1.0% -2.7% -2.6%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%


Oct-12 Sept-12 Oct-11 YTD-12CTA/Mgd Futures -2.7% -1.0% -1.2% -2.6%S&P GSCI Commodity (SPGSCI) -4.1% -1.0% 9.7% 0.9%DJ-UBS Commodity (DJAGK) -3.9% 1.7% 1.0% 2.5%

-1.8%

-2.4%

-2.9%

Under 2 Years

2 - 5 Years

Over 5 Years

-2.9%

-2.6%

-2.7%

Large($500+ MM)

Medium($100 - $500 MM)



Source: Citi Prime Finance. Source: Citi Prime Finance.

Source: Citi Prime Finance; FactSet. Source: Citi Prime Finance.





16

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec YTDCiti-derived Median -4.5% -5.2% -1.3% 1.4% 4.7% -0.8% 1.7% -1.7% -5.6% 0.3% -10.9%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%


Oct-12 Sept-12 Oct-11 YTD-12Ded Short Bias 0.3% -5.6% -6.2% -10.9%S&P Short ETF (SH) 1.8% -2.8% -10.6% -14.6%Rus 2000 Short ETF (RWM) 2.2% -3.5% -15.1% -14.1%

0.0

0.5

1.0

1.5

2.0

2.5


n/m

n/m

0.3%

Under 2 Years

2 - 5 Years

Over 5 Years

n/m

-5.6%

0.3%

Large($500+ MM)

Medium($100 - $500 MM)



Distressed


Source: Citi Prime Finance; Citigroup Index LLC; Altman-NYU Salomon Center. Source: Citi Prime Finance.





17

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec YTDCiti-derived Median 2.1% 1.5% 0.8% 0.0% -1.4% -0.2% 0.9% 1.4% 1.2% 1.4% 7.6%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%


Oct-12 Sept-12 Oct-11 YTD-12Distressed 1.4% 1.2% 2.0% 7.6%Citi HY Bond Index 0.8% 1.3% 5.8% 11.3%

0.0

0.5

1.0

1.5

2.0

2.5


n/m

1.5%

1.3%

Under 2 Years

2 - 5 Years

Over 5 Years

2.1%

1.2%

1.3%

Large($500+ MM)

Medium($100 - $500 MM)



Emerging Markets







18

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec YTDCiti-derived Median 3.8% 3.5% 0.0% -0.4% -4.8% 0.8% 0.5% 0.9% 2.2% 1.0% 7.4%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12Oct-12 Sept-12 Oct-11 YTD-12

Emerging Mkts 1.0% 2.2% 3.1% 7.4%MSCI EM -0.6% 6.1% 13.3% 12.8%JPM EMBIG Core ETF (EMB) 0.6% 1.8% 5.2% 14.0%DB EM Liquid ETF (PCY) 1.8% 2.0% 5.3% 17.4%

0.0

0.5

1.0

1.5

2.0


0.8%

1.2%

0.9%

Under 2 Years

2 - 5 Years

Over 5 Years

0.9%

0.7%

1.1%

Large($500+ MM)

Medium($100 - $500 MM)



Equity Long/Short







19


-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%


Oct-12 Sept-12 Oct-11 YTD-12Eq Long/Short 0.3% 2.2% 3.2% 5.9%Eq Mkt Neutral 0.0% 0.4% 1.3% 2.5%S&P 500 -1.8% 2.6% 10.9% 14.0%

0.60.91.11.41.61.92.12.42.62.9


-0.2%

0.6%

0.2%

Under 2 Years

2 - 5 Years

Over 5 Years

0.4%

0.2%

0.3%

Large($500+ MM)

Medium($100 - $500 MM)










20


-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12Oct-12 Sept-12 Oct-11 YTD-12

Eq Mkt Neutral 0.0% 0.4% 1.3% 2.5%Eq Long/Short 0.3% 2.2% 3.2% 5.9%LIBOR + 300 bps 0.3% 0.3% 0.3% 2.7%US T-Bill + 300 bps 0.3% 0.3% 0.3% 2.6%

0.0

1.0

2.0

3.0

4.0

5.0

6.0


0.2%

-0.1%

0.1%

Under 2 Years

2 - 5 Years

Over 5 Years

-0.03%

-0.1%

0.2%

Large($500+ MM)

Medium($100 - $500 MM)



Event Driven







21

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec YTDCiti-derived Median 1.9% 1.7% 0.4% -0.4% -2.5% -0.2% 0.4% 1.5% 1.4% 0.2% 4.3%

-3.0%-2.5%-2.0%-1.5%-1.0%-0.5%0.0%0.5%1.0%1.5%2.0%2.5%


Oct-12 Sept-12 Oct-11 YTD-12Event Driven 0.2% 1.4% 1.9% 4.3%The Merger Fund (MERFX) -1.0% -0.3% 1.8% 1.2%AQR Div Arb Fund (ADANX) -0.1% 0.5% 0.2% 1.9%

0.0

1.0

2.0

3.0

4.0

5.0

6.0


-1.6%

-0.2%

0.4%

Under 2 Years

2 - 5 Years

Over 5 Years

0.6%

-0.1%

0.5%

Large($500+ MM)

Medium($100 - $500 MM)



FI Arbitrage


Source: Citi Prime Finance; Citigroup Index LLC. Source: Citi Prime Finance.





22

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec YTDCiti-derived Median 1.3% 1.0% 1.4% 0.5% -0.5% 0.7% 1.3% 0.8% 1.1% 0.6% 8.1%

-3.0%-2.0%-1.0%0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%


Oct-12 Sept-12 Oct-11 YTD-12FI Arbitrage 0.6% 1.1% 0.7% 8.1%Citi US BIG Index 0.2% 0.1% 0.1% 4.1%Citi HY Bond Index 0.8% 1.3% 5.8% 12.0%

0.4%

0.7%

0.5%

Under 2 Years

2 - 5 Years

Over 5 Years

1.0%

0.6%

0.3%

Large($500+ MM)

Medium($100 - $500 MM)



0.0

1.0

2.0

3.0

4.0

5.0

6.0


Global Macro

Source: Citi Prime Finance. Source: Citi Prime Finance; FactSet.

Source: Citi Prime Finance; FactSet. Source: Citi Prime Finance; FactSet.





23

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec YTDCiti-derived Median 1.3% 1.3% 0.0% -0.6% -1.2% -0.5% 1.2% 0.3% 0.1% -0.9% 1.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%


Oct-12 Sept-12 Oct-11 YTD-12Global Macro -0.9% 0.1% 0.7% 1.0%MSCI World -0.6% 2.8% 10.4% 12.9%US$-Index 0.0% -1.6% -3.0% -0.1%

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0


0.1%

-0.4%

-1.2%

Under 2 Years

2 - 5 Years

Over 5 Years

-1.1%

-1.2%

-0.9%

Large($500+ MM)

Medium($100 - $500 MM)



Multi-Strategy







24


-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%


Oct-12 Sept-12 Oct-11 YTD-12Multi-Strategy 0.2% 0.1% 1.0% 2.9%

0.0

1.0

2.0

3.0

4.0

5.0

6.0


0.2%

-0.1%

0.4%

Under 2 Years

2 - 5 Years

Over 5 Years

0.3%

0.8%

0.1%

Large($500+ MM)

Medium($100 - $500 MM)



Firm Disclaimers and Market Commentary DisclosuresThis communication has been prepared by employees of Citi and is distributed by or through its locally authorized affiliates (collectively, the “Firm”). Employees preparing this communication are not Research Analysts and are not employees of Citi Investment Research (CIRA) and the information in this communication (the “Message”) is not intended to constitute “research” as that term is defined by applicable regulations. Any reference to a research report or research recommendation is not intended to represent the whole report and is not in itself considered a recommendation or research report. Please contact your Firm representative for a copy of a comprehensive research report. All views, opinions and estimates expressed in the Message constitute the author’s and/or the Firm’s judgment as of the date of the Message, may change without notice and may differ from those views, opinions and estimates expressed by other Firm personnel.

IRS Circular 230 Disclosure: Citigroup Inc. and its affiliates do not provide tax or legal advice. Any discussion of tax matters in these materials (i) is not intended or written to be used, and cannot be used or relied upon, by you for the purpose of avoiding any tax penalties and (ii) may have been written in connection with the “promotion or marketing” of any transaction contemplated hereby (“Transaction”). Accordingly, you should seek advice based on your particular circumstances from an independent tax advisor. The Message is provided for information and discussion purposes only and is not a representation or recommendation by the Firm. It does not constitute an offer or solicitation to purchase or sell any financial instruments, and does not take into account the investment objectives or financial situation of any particular person. Investors should obtain advice based on their own individual circumstances from their own tax, financial, legal and other advisors before making an investment decision, and only make such decisions on the basis of the investor’s own objectives, experience and resources. The information contained in the Message is based on generally available information and, although obtained from sources believed by the Firm to be reliable, its accuracy and completeness cannot be assured, and such information may be incomplete or condensed. Certain personnel or business areas of the Firm may have access to or may have acquired material non-public information that may have an impact (positive or negative) on the information contained in the Message, but that is not available to or known by the author of the Message.

The Firm may be the issuer of, may make a market in or may trade as principal in the financial instruments referred to in the Message or other related financial instruments. The Firm may perform or seek to perform investment banking and other services for the issuer of any such financial instruments. The author of the Message may have discussed the information contained therein with others within or outside the Firm and the author and/or such other Firm personnel may have already acted on the basis of this information (including by trading for the Firm’s proprietary accounts or communicating the information contained herein to other customers of the Firm). Compensation of Firm personnel may include consideration of the performance of such department’s activities.

The Firm, the Firm’s personnel (including those with whom the author may have consulted in the preparation of this communication), and other customers of the Firm may be long or short the financial instruments referred to in the Message, may have acquired such positions at prices and market conditions that are no longer available, may be a director or office of any company referenced herein and may have interests different from or adverse to your interests.

Investments in financial instruments carry significant risk, including the possible loss of the principal amount invested. Financial instruments denominated in a foreign currency are subject to exchange rate fluctuations, which may have an adverse effect on the price or value of an investment in such products. No liability is accepted by the Firm for any loss (whether direct, indirect or consequential) that may arise from any use of the information contained in or derived from the Message.

Unless otherwise indicated, the Message is not intended to forecast or predict future events. Past performance is not a guarantee or indication of future results. Any prices provided in the Message (other than those that are identified as being historical) are indicative only and do not represent firm quotes as to either price or size. You should contact your local representative directly if you are interested in buying or selling any financial instrument, or pursuing any trading strategy, mentioned herein.

Although the Firm is affiliated with Citibank, N.A. (together with its subsidiaries and branches worldwide, “Citibank”), you should be aware that none of the other financial instruments mentioned in the Message (unless expressly stated otherwise) are (i) insured by the Federal Deposit Insurance Corporation or any other governmental authority, or (ii) deposits or other obligations of, or guaranteed by, Citibank or any other insured depository institution.

The information in this Message may be confidential or otherwise protected by law. If you are not the intended recipient of the Message, please delete and do not disclose or make improper use of it, and promptly notify the sender. The Message contains data compilations, writings and information that are proprietary to the Firm and protected under copyright and other intellectual property laws, and may not be redistributed or otherwise transmitted by you to any other person for any purpose. Electronic messages are not necessarily secure or error-free and can contain viruses, and the sender is not liable for any of these occurrences. The Firm reserves the right to monitor, record and retain electronic messages.

We are required to obtain, verify and record certain information that identifies each entity that enters into a formal business relationship with us. We will ask for complete name, street address and tax payer ID number. We may also request corporate formation documents, or other forms of identification, to verify information provided.

Copyright © Citi 2012. All Rights Reserved. Citi and Citi Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world.

25

Contacts

For Further Information, Please Contact

Mark [email protected]

This report has been prepared by members of Citi Prime Finance and is not a research report. This report does not constitute advice on investments or a solicitation to buy or sell any financial instrument. Please see Market Commentary Disclosures.

26

Documents

Hedge Fund Industry Snapshot - Citigroup · (September 2012 +$21.2 billion). Year to date performance gains stand at +$82.1 billion compared to -$31.92 billion over the same period