Plummeting stock markets and uncertainty around emerging markets has seen hedge funds record their worst first quarter performance for six years.

Plummeting stock markets and uncertainty around emerging markets has seen hedge funds record their worst first quarter performance for six years.

According to data provider Preqin, the all hedge-fund strategies benchmark gained a measely 1.23 per cent for the period. The last time the industry produced figures this bad was in 2008 when the world was about to sink into recession.

And it is in stark contrast to both 2012 and 2013 when hedge funds achieved their highest returns in  the first quarter, with returns of 6.07 per cent and 3.76 per cent respectively.

“For the last year/18 months the rise in equity markets has driven strong returns for hedge funds,” said Amy Bensted, head of hedge fund products at Preqin. “Equity markets have struggled this year and now hedge funds have to be nimble and look for other opportunities.”

Global stocks had been on a bull market run but have since cooled. Last Thursday the Nasdaq Composite Index sank 3.1 per cent  to a two-month low that erased its gain this year. The Standard & Poor’s 500 Index lost 2.1 per cent on the same day.  

The data reveals both January and March returns were both in the red, with only February’s benchmark performance of 1.75 per cent keeping performance in positive territory for the quarter.

It also shows that event driven strategies continue to lead the way, with more investors willing to take on the illiquidity premium of investing in these strategies in the first quarter this year than in the final quarter in 2013.

Bensted added that fund managers are predicting developed markets will outperform emerging markets in 2014, and the first quarter results support this outlook. Developed markets-focused funds posted returns of 2.21 per cent compared to the 0.01 per cent loss suffered by emerging markets funds.