Australian based Fund of Funds HFA Asset Management has suspended redemptions from a number of its underlying funds including the HFA Diversified Investment Fund, and the HFA Octane and Octane Series 2 Fund, effective December 22nd.

Citing deteriorating liquidity in the underlying funds in which it invests, HFA also announced limited liquidity in their US based Lighthouse Diversified Fund, by establishing a special purpose vehicle (commonly referred to as a "side pocket") to hold and isolate the redemptions in illiquid investments until such time as they are liquidated.

HFA are not the first, and are unlikely to be the last Fund of Funds to halt or limit redemptions due to lack of liquidity in underlying funds. In October Everest Babcock and Brown announced that it would freeze redemptions in their Income Fund, and earlier this month Macquarie announced a halt to redemptions in their Equinox Series of funds. Prior to this there were wide ranging redemption freezes in many Australian based mortgage funds.

To date single manager Australian Funds have avoided freezing redemptions in spite of being subjected to significant and widespread redemptions from investors, particularly Fund of Funds, who in turn have been subjected to a wave of redemptions from their own investors. However, the redemptions to date are having a domino effect as investors redeem from otherwise well performing funds due to the lack of liquidity in others. The liquidity issues are also primarily based on the larger overseas managers, although the flow on effect has certainly reached Australian funds and their investors.

With the S&P500 and the ASX both down around 7%, and energy and commodities in disarray, it seems strange to be saying that November saw some improvement and signs of stability. With 70% of funds reporting to date, the average November return of Absolute Return funds in AFM’s database was minus 2.81%.

The debate in the media continues as to whether Absolute Return Funds as a whole should be reporting negative results, but a more careful analysis shows that strategy selection has determined investors’ returns in 2008.

Once again the best performing strategies were non-equity based (i.e. Global Macro, Commodities, Currencies and Managed Futures). Equity based strategies suffered but still on average outperformed the underlying equity benchmarks with the S&P/ASX200 Accumulation Index ending down 6.2% for the month, the S&P500 Total Return Index down 7.18%.

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The Prime Value Growth Fund (PVGF) recorded a loss of -4.9% in November, bringing its YTD performance to -33.1%. The Prime Value Imputation Fund (PVIF) also posted a loss of -8.3% in November, making its YTD performance -41.2%. Both funds invest in a long portfolio of predominantly Australian listed equities.

The PVGF outperformed the S&P/ASX300 Index (-6.3% in November), which Prime Value attributed to the fund's underweight positions in Australian financial and consumer discretionary stocks, while at the same time holding cash in negative market conditions. Although optimistic about investment prospects in 2009, the fund will remain cautious in the near term.

The PVIF underperformed the S&P/ASX300 Index, mostly due to the fund's overweight position to Australian industrial stocks, although this was somewhat offset by the fund's cash holding.

The Platypus Asian Equities Fund was down -0.14% in November, while the Platypus Australian Long/Short Fund was up +0.21% (both in USD). The respective YTD returns for these funds are now +2.31% and -6.53%.

The Asian Equities Fund, a systematic long/short Asian equities fund, cites the fund's overall net short position over recent months as the main driver of performance. The fund remains lightly invested across countries.

The Australian Long/Short Fund, a systematic long/short Australian equities fund, noted that the local currency return for the month was in fact +0.41%. Overall the positive November result was attributed to the strong performance of the fund's market neutral portfolio, which returned +4.43% on an attributed basis.

Cadence Capital Limited was down -6.38% after fees in November, bringing its YTD performance to -34.16%.

Although outperforming the All Ordinaries Accumulation Index (-7.2%) and the Small Ordinaries Accumulation Index (-9.6%) in November, the fund recorded a negative result to follow on from negative results in October and September. During November the fund significantly decreased their net exposure to the market from October (47.7% to 28.4%). Cadence Capital Limited is an Australian long/short equity fund, with a long bias towards small- and medium-capitalisation listed entities.

The MQ Asia Long Short Fund returned +0.08% in November, and is now at -10.68% for the past 12 months. This is compared to the Eurekahedge Asia Long Short Index which was down -23.72% over the same period.

Like many other funds, the fund reported an increased level of redemptions during November, and during December has been actively managing these outflows. MQ believes there are several reasons for the fund to be optimistic about the future, including the decreased distortions in liquidity markets, the availability of more accurate macro research reports and the fact that the fund has minimal directional market exposure.

Aurora Funds Management's Infrastructure Buy-Write Income Trust, managed by Talon Infrastructure, reported a return of +1.58% for November, bringing its performance since inception (December 2007) to -2.49% and its YTD performance to -2.55%.

This result compares favourably to the UBS Global 50/50 Infrastructure and Utility Index, which returned -34.3% since the trust's inception. The trust aims to generate positive returns from investing in listed infrastructure entities worldwide, through active derivatives trading. The positive performance in November was due to positive performance in the trust's US positions, offset partially by negative returns on UK and European positions.

Financial Risk Management's (FRM) Global Equity Fund posted a loss of -0.85% in November, while their Diversified Australia Fund posted -2.29%. The YTD returns of these funds now stand at -26.19% and -21.43% respectively.

FRM's Global Equity Fund, a fund of hedge funds (FoHF) which pursues an active strategy in equity markets, outperformed its benchmark (the MSCI World Index hedged in AUD) which returned -6.08% in November. The fund recorded losses in most geographic regions, with Japan the only region which prodcued a positive absolute return.

The Diversified Australian Fund, a FoFH which aims to produce returns in excess of cash with a near zero beta to traditional assets, reported losses in most strategies. Positive returns were generated by directional trading managers, specifically those with systematic and relative value macro strategies.

Blue Sky's World Fund returned +6.30% in November, and is up +0.98% YTD. This result means the fund has generated consistently positive returns since August this year.

The fund's positive performance was attributed to index futures and forex strategies, which were however partially offset by negative returns in North American and Asia Pacific equity strategies.

Headland's Global Diversified Fund returned +0.27% in November, bringing its YTD performance to +1.60%.

For the second consecutive month the fund was fully invested in cash, due to continuing volatility in the markets. The fund will look to reinvest in 2009, on the expectation that volatility will be lower. The Headland Global Diversified Fund invests in price trends in global bonds, currencies and commodities.