Austral Capital has reported marginally positive returns for September, continuing their very defensive strategy and allocating aroung 95% of the portfolio to cash citing capital protection as paramount. Austral Capital further stated it is continually monitoring counterparty risk and is satisfied with all assets held by or on behalf of its prime broker UBS.

The Austral Equity Fund achieved 0.24% for the month with approximately A$14m FUM. In the Austral Opportunity Fund, which uses a similar investment strategy and has approximately A$32m FUM, A$ shares returned a positive 0.32% while US$ shares recorded a negative 0.24%, due to the devaluation in the Aussie dollar. The September results bring the YTD cumulative returns to -0.32% and -0.22% for the Equity and Opportunities Funds, respectively.

Austral Capital is an event driven hedge fund manager and invests primarily in the securities of Australian companies that are, or may be, involved in special situations or corporate events such as equity and hybrid security issues, block trades, mergers and takeovers, de-mergers, reconstructions, recapitalisations and spin-offs.

As expected initial September performance reports from Australia's Absolute Return and Hedge Fund sector are showing considerable diversification. However given the significant volatility across a range of underlying financial markets and asset classes, plus the ban on short selling equities, there have been some positive results.

Best results to date (as of 7th October) include Blue Fin Capital’s Currency/FX with 9% (5.83% YTD); Apeiron Global Macro’s +7.22% (+13.55% YTD); TechInvest's market neutral Intercept Capital Fund +3.44% (+11.97% YTD); Commodity Strategies’ long/short fund +3.27% (+11.9% YTD) and Wallace Funds Management’s equity market neutral +0.85% (+29.73% YTD).

On the negative side Plato Investment Management’s Equity 130/30 was down over 12% (-27.48% YTD) reflecting the problems experienced in the equity sector and the ban on short selling.

Commodity Strategies has reported September results for its long/short and long only programs, returning +3.27% and +11.94% YTD for the Long/Short, and -1.61% and +7.96% YTD for the Long only.

Commodity Strategies was established in 1999 by Robert Holroyd with the objective of providing diversification from and low correlation to equity markets.

Australia's Reserve Bank (RBA) exceeded market expectations by cutting rates by a full percentage point, to 6.00%, double the 50 basis points that the market was expecting.

Citing weakening economic activity in major economies, and evidence of moderation in growth in Australia's trading partners in Asia as indications that global inflation will moderate in 2009, the Board chose to ignore their expectations of a CPI figure of around 5% for the year to September, and introduce an unusually large movements in the cash rate to bring about a significant reduction in costs to borrowers.

However the RBA's statement was careful to point out that it did not expect this movement to establish a pattern for future decisions, and that they were all continue to set monetary policy as needed to bring inflation back to the 2 to 3% target over time.

Redwood Capital’s Apeiron Global Macro fund has continued to show the benefits of diversification away from equities with a positive performance in September of +7.22%, bringing 2008 YTD performance to +13.55%.

Apeiron's monthly performance report noted that they had reduced overall risk in the portfolio as a prudent measure to the fear that was building in financial markets. As a result they were short equity indices, and held very limited exposure in other markets during the month.

The Apeiron Global Macro Fund uses directional strategies in futures and FX markets to implement investment themes. The fund was formerly called Solaris Global Macro, and returned 20.79% in calendar 2007.

Australia's Absolute Return & Hedge Funds continued to weather the storm in financial markets and outperform the broader equity benchmarks on a year to date (YTD) basis to the end of August. The ASX200 was down over 27% over this period, while the average hedge fund return in AFM's database of over 200 funds was down 4.16%.

To date approximately 90% of all funds surveyed by Australian Fund Monitors have reported August results and the average return for the month was +0.90% against a rise of +3.08% for the ASX200 and +1.20% for the S&P500. During the month 55% of funds achieved a positive return after fees with 30% outperforming the ASX200.

It has been a turbulent year in the industry across all strategies with most funds finding it hard to avoid at least one negative month. The best performing strategies continue to be non-equity based, including Commodities, FX, Global Macro and Futures. However, Commodity strategies have been retracing in recent months while Equity Market Neutral funds continue to perform well. The only fund manager to achieve a positive result every month since January is Fortitude Capital (AIMA Hedge Fund of the Year 2008) implementing an equity market neutral strategy.

To read the full report download the file below.

Everest Babcock & Brown Alternative Investment Trust (EIB) plans to delist from the ASX to address EBI's trading discount to NTA which is currently 33%. EBI is a fund of hedge funds and has exposure to a portfolio of international absolute return funds and selected direct investments.

The proposal is to be voted on by its security holders on October 3 and EBI plans to put in place redemption facilities ahead of and after its de-listing.

EBI Chairman, Trevor Gerber said: "The trading discount to NTA is an issue of concern to many listed investment vehicles in the market today. The Board has been looking at potential solutions for some time and in developing our proposal we have been mindful to balance the needs of Unitholders who would like reasonable levels of liquidity in the short term, with those of investors who have invested for the longer term, by ensuring the value of the underlying investments are not compromised.

The proposal allows Unitholders who wish to exit to progressively redeem from EBI at a price closer to the underlying value of their units."

To view EIB's statement to the ASX click here or to read commentary on the delisting, including a comparison to similar moves by hedge fund manager Ellerston, click here.

ASIC has released a statement to clarify uncertainty around the short-selling ban. This statement addresses the disclosure requirements and exemptions to the ban including the use of short selling to hedge derivative positions.

In summary, exemptions to the short-selling ban include:

• Hedging for existing positions pre-22 September 2008
  
• Dual listed entities
  
• Exercise of exchange traded options
  
• Index arbitrage transactions
  
• Certain covered short sales by Market Makers
  
• Hedging corporate underwriting risk

Australia's share market watchdog has eased its blanket ban on short selling to allow investors trading the difference between share prices on dual-listed stocks to make covered short sales.

The move by the Australian Securities and Investments Commission (ASIC) largely affects funds trading in the dual-listed shares of top miners BHP Billiton Ltd/plc and Rio Tinto Ltd/plc.

Market operator ASX said on Tuesday the regulator would allow investors doing arbitrage trades on dual-listed stocks to use covered short sales on those stocks in Australia.

The term "short" has been in use since at least the middle of the 19th century and refers to the deficit position that a short seller has with their brokerage firm. The practice has been around for centuries and has often been used a scapegoat when financial markets are going through a difficult period.

The first recorded instance of short selling is believed to have occurred in 1609 when a merchant arranged short sales on stocks of the Dutch East Indies Company VOC which was listed on the Amsterdam stock exchange. This also prompted the first attempt to ban the practice. In 1610, directors of the company persuaded the government to declare shorting illegal as bearish speculators were "incommensurably damaging innocent shareholders, among which are widows and orphans". Illegal short selling continued anyway, so in 1689 the Dutch government imposed a tax on profits from the activity.

A similar pattern recurred in 1720 in Great Britain when the speculative South Sea Bubble burst. Shares in the South Seas Company jumped from 325 pounds to 1200 pounds as merchants rushed to acquire the rights to trade with Latin American countries. When shares in the company later fell to just 86 pounds short sellers got the blame. A law banning short selling was introduced in 1734, but as it was never applied it was repealed in 1860.

New York state unsuccessfully banned short selling in 1812 following heavy speculative activity that occurred at the outbreak of war with England but was repealed during the 1857-59 depression. The US government tried to rein in short selling in 1864 with the Gold Speculation Act, however in just two weeks the price of gold rose from $200 to nearly $300 and the ban was lifted.

Bank failures and panic in the British financial markets in 1866 was blamed on short selling and a law was passed forbidding short sales on banking shares. Once again the law was never used and testimony to a Royal Commission in 1868 showed that the problems had been caused by irresponsible banking practices and poor asset quality.

Short selling continued throughout the 20th century, but so did the animosity toward its practitioners. In 1929 such was the fury of ruined shareholders that one short seller had to hire bodyguards.

The very first hedge fund employed short selling as part of its strategy. Established in 1949 by Australian-born Alfred Winslow Jones with $100,000, the fund combined long positions on undervalued shares with short positions on overvalued shares. The early 1980's saw the creation of the first companies that specialising in short selling, and hedge funds with focus on the practice became more attractive after the stock market crashes of 1987 and 2000.

It remains to be seen whether the regulatory reaction to recent market hysteria is any more successful than previous attempts to curtail short selling.