JPM Prime Brokerage Global Hedge Fund Trends May 2013.pdf

J.P. Morgan Prime Brokerage Global Hedge Fund Trends
1
This material is provided by J.P. Morgan’s Prime Brokerage business for informational purposes only. It is not a product of J.P. Morgan’s Research Departments.
For Institutional Investors only. For the intended recipient only. The reference period for this publication is April 2013 unless otherwise stated.
May 13, 2013
Executive Summary
April was characterized by continued increases in the equity
markets along with a broad selloff in commodities. The HFRI
Global Hedge Fund Index increased +0.69% month-over-
month. In a notable trend reversal, global macro was among
the strongest performers of the major hedge fund strategies,
rising +1.00%. Relative value made a strong contribution,
increasing +0.99%. The HFRI Event Driven Index rose
+0.90% and the HFRI Equity Hedge Index was up +0.35%.
Leverage
For all accounts in the Prime Brokerage portfolio, gross
leverage1
rose from 1.88 to 1.89 (+0.5%) in April as market
participants increased risk appetite incrementally. Net
exposure2
rose from 0.69 to 0.75 (+7.9%) month-over-month
and net leverage increased from 0.63 to 0.68 (+7.4%).
Securities Lending
The U.S. Prime Brokerage portfolio was net covered for a
third consecutive month. Equities drove activity as investors
focused on first quarter earnings. Fixed income activity was
also skewed towards covering, while ETFs were net shorted.
In Europe, the Glencore/Xstrata merger was finalized,
resulting in downward pressure on borrow rates.
Institutional Investor Sentiment
In North America, a number of consultants are beginning to
consider emerging managers in an effort to differentiate
themselves. In Europe, there is some interest in differentiated
equity strategies such as activist managers with concentrated
portfolios.
Market Perspectives
Although certain data points emerged in April that potentially
bode well for the U.S. economy, growth remains tepid. U.S.
first quarter GDP was 2.5%, which exceeded the fourth
quarter’s anemic pace of 0.4%, but was nevertheless below
expectations. The government sector in the U.S. continues to
exert a drag, as federal spending contracted -4.1% during the
first quarter. It seems likely that the ongoing pullback in
federal outlays will continue to serve as a weight on the heels
of a still-muted recovery.
1
Gross leverage is the total market value of long and short positions divided by clients'
equity in J.P. Morgan’s Prime Brokerage portfolio.
2
Calculated for Equity Long Short and Market Neutral funds on J.P. Morgan’s Prime
Brokerage platform only. Net leverage is defined as the market value of long positions
(LMV) minus the market value of short positions (SMV), divided by clients’ equity (Eq).
Net exposure is defined as the ratio of LMV and SMV, minus one.
Figure 1: April 2013 performance
HFRI and Market Indices. Monthly Returns
Source: Bloomberg, Hedge Fund Research
Table 1: Performance of hedge fund strategies and asset classes
HFRI and Market Indices3
Apr-13 Year-to-Date
HF Index 0.69% 4.37%
Equity LS 0.35% 5.39%
Event Driven 0.90% 4.84%
Macro 1.00% 2.29%
Relative Value 0.99% 4.16%
S&P 500 1.93% 12.74%
Fixed Income 0.97% -1.86%
CMDTY -4.67% -3.42%
USD -1.48% 2.48%
Credit 1.81% 1.89%
Figure 2: Hedge fund beta to equities
Rolling 21-day beta of HFRX equal-weighted index returns to the S&P 500 Total Return
Index
3
Market indices from Bloomberg are as follows: S&P 500 (SPTR Index), Fixed Income
(JPMGGLBL Index), CMDTY (SPGSCI Index), USD (DXY Index), and Credit (JULIR
Index).
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
HF IndexEquity LS Event
Driven
Macro Rel Value S&P 500 Fixed
Income
CMDTY USD Credit
2,100
2,200
2,300
2,400
2,500
2,600
2,700
2,800
2,900
0.01
0.03
0.05
0.07
0.09
0.11
0.13
0.15
Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13
Equity Beta (LHS) S&P 500 Total Return Index (RHS)

Prime Brokerage Global Hedge Fund Trends – Performance, Leverage, and Risk Exposures
2
This section presents a summary of the changes that we have observed in leverage and sector exposures across the range of hedge funds that we
work with. The confidentiality of our clients’ positions is important to us and as such this information has been aggregated and displayed in an
anonymous manner in an effort to mitigate the risk of revealing or alluding to any one fund’s exposures. Information may be excluded due to the
perceived risk of revealing sensitive information. The information discussed is specific to activities on J.P. Morgan’s books, and may not represent
total client activity. These numbers should only be viewed as representative observations.
Market Overview
April was characterized by continued gains in the equity
markets, particularly in the U.S. and Japan, a broad selloff in
commodities and mixed economic data. The S&P 500 Total
Return Index increased +1.93% month-over-month and the
Nikkei rose +11.7%, posting its strongest April performance
since 1993 as the Bank of Japan (BoJ) proceeded with its
plans to reflate Japan’s economy. In terms of economic data,
the U.S. jobs report for April exceeded expectations, with
total nonfarm payrolls rising 165,000, causing the
unemployment rate to fall to 7.5%. By contrast, though,
manufacturing PMIs were down globally, March factory
orders slid -4.0%, and first quarter U.S. GDP was weaker
than expected at 2.5%. In part because of the mixed data, the
Federal Reserve is unlikely to reign in its bond buying
program in the foreseeable future. Credit should therefore
remain plentiful, in turn prolonging investors’ hunt for yield.
Hedge Fund Composite
The HFRI Global Hedge Fund Index climbed +0.69% in
April. Global macro and relative value strategies fueled most
of those gains, but all of the major hedge fund categories
returned positive performance, as was the case in March.
There was a noticeable increase in April in the beta of the
HFRX equal-weighted index returns to the S&P 500 Total
Return Index.
Global Macro
In a noticeable reversal of a months’-long trend, global macro
was the best performing strategy in April among the core
hedge fund categories. The HFRI Macro Index returned
+1.00% month-over-month. Trend followers navigated the
massive selloff in gold and other commodities. (Gold
suffered its largest two-day decline in April over the last 30
years.) Accordingly, the HFRI Macro Systematic Diversified
CTA Index rose +2.3%. Both systematic and discretionary
managers with short Yen and long Japanese equities
exposures also benefitted from the Bank of Japan’s onward
march with respect to monetary easing. Managers with long
exposure to U.S. equities benefitted from continued gains in
the S&P 500.
Figure 3: Gold spot daily performance year-to-date
Source: Bloomberg
Relative Value
As in prior months, relative value managers were among the
best performers within the main hedge fund strategies, with
the HFRI Relative Value Index rising +0.99% in April. As in
March, gains among relative value strategies were fueled
largely by multi-strategy and convertible arbitrage managers,
which posted increases of +1.5% and +1.1%, respectively.
April marked the eleventh consecutive monthly gain for the
HFRI Relative Value Index, which has delivered positive
performance in 45 of the 52 months since December 2008.
Event Driven
The HFRI Event Driven Index rose +0.90% in April. Gains
were helped by ongoing deal activity. Distressed transactions
added to the gains, with the HFRX Distressed Restructuring
Index up +0.85% month-over-month. Merger arbitrage
managers also contributed to April’s positive performance,
with the HFRX Merger Arbitrage Index increasing +0.72%
month-over-month.
Equity Hedge
The HFRI Equity Hedge Index increased +0.35% in April as
the S&P 500 continued its year-to-date climb. Equity-biased
managers benefitted from exposures to U.S. and Japanese
equities, which continued their ascent. Equity-focused funds
also benefitted from continued shareholder-friendly activity,
including dividend payments and share buybacks.
Throughout April, market participants were heavily focused
on corporate earnings. Of the companies that reported, 65%
-11.0%
-9.0%
-7.0%
-5.0%
-3.0%
-1.0%
1.0%
3.0%
Jan-13 Feb-13 Mar-13 Apr-13
GOLDLNPM Index

3
exceeded earnings per share expectations, which is in line
with trend. Energy and industrials sectors, which declined -
0.88% and -0.84%,4
respectively, offset gains in other
sectors, particularly telecommunications (+5.99%) and
utilities (+5.89%), which outperformed. Weakness in the
energy and industrials sectors may reflect slowing growth
rates, which were captured in the sagging manufacturing
PMIs.
Figure 4: Sector performance, April 2013
Source: Standard & Poor’s, Bloomberg
April seemed to mark a growing divergence between equity
markets on one hand, which continued their year-to-date
gains, and underlying economic data on the other hand,
which sent negative signals. In addition to declining output
PMIs in the U.S., the Euro zone and China, the global
manufacturing PMI is now in negative territory – a bearish
indicator for cyclical sectors. The continued rise in equity
markets is therefore not a reaction to positive signs regarding
economic growth. Instead, it appears that share buyback
activity is helping to support equity markets to a significant
extent. As Figure 5 shows, share buyback activity year-to-
date is comparable to the highs reached in the same periods
in 2007, 2007 and 2011.
4
Based on S&P 500 Energy Index and S&P 500 Industrials Index.
Figure 5: Global share announced buybacks in first four months
of the year ($billion)
Source: ThomsonOne, J.P. Morgan Global Markets Outlook and Strategy
5.99% 5.89%
2.93% 2.90%
2.79% 2.69%
0.83%
0.55%
-0.84% -0.88%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
0
50
100
150
200
250
300
02 03 04 05 06 07 08 09 10 11 12 13

4
Leverage and Risk Exposures
Gross Leverage
There was a modest uptick in risk appetite towards month-
end once volatility subsided after having notched up during
the middle of April. For all accounts in the Prime Brokerage
portfolio, gross leverage rose from 1.88 to 1.89 (+0.5%) (See
Figure 6). Gross leverage of levered accounts in the Prime
Brokerage portfolio fell from 2.57 to 2.49 (-2.9%) (See
Figure 7). The divergence in gross leverage between levered
accounts and all accounts is typical during risk-on
environments. During such periods, a greater number of
clients run leverage, including those that opportunistically do
so at lower levels, which causes the average among levered
accounts to be skewed lower.
Figure 6: Daily gross leverage and the S&P 500 Index
Source: Bloomberg, J.P. Morgan Prime Brokerage
Figure 7: Gross leverage (levered accounts) 5-day moving
average and the S&P 500 Index
Figure 8: Z-score of gross leverage and the S&P 500 Index
The Z-score measures how many standard deviations an observation is above or below
the mean
Gross Leverage by Strategy
Gross leverage rose for Equity Long Short (+6.3%) in April
while Convertible Arbitrage and High Grade Fixed Income
fell -5.9% and -9.0%, respectively. An uptick in leverage for
equity-biased strategies is in line with the historical trend
alongside earnings season. As in March, all strategies are
running leverage at or above their 2-year averages except for
High Grade Fixed Income.
Figure 9: Gross leverage by strategy
Source: J.P. Morgan Prime Brokerage
1.75
1.80
1.85
1.90
1.95
1,250
1,300
1,350
1,400
1,450
1,500
1,550
1,600
May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13
S&P 500 Index (LHS) Gross Leverage (RHS)
2.4
2.5
2.6
2.7
1,250
1,300
1,350
1,400
1,450
1,500
1,550
1,600
May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13
S&P 500 Index (LHS) Gross Leverage (Levered Accounts - RHS)
-1.3
0.0
1.3
May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13
Difference between gross leverage and S&P 500 Index Z-scores
0
1
2
3
4
5
Market Neutral Equity Long
Short
Multi-Strategy Convertible
Arbitrage
High Grade
Fixed Income
High Yield
Fixed Income
Feb-13 Mar-13 Apr-13

5
Table 2: Gross leverage by strategy
Average and first quartile calculated for the period of April 2011 to April 2013
Net Exposure and Net Leverage
Net exposure for equity-biased funds rose from 0.69 to 0.75
(+7.9%) in April and net leverage increased from 0.63 to 0.68
(+7.4%). Higher exposures and net leverage are reflective of
an uptick in bullishness and risk appetite among equity-
centric managers.
Figure 10: Net exposure and net leverage
Equity Long Short and Market Neutral funds on the Prime Brokerage platform only.
LMV: Market value of long positions. SMV: Market value of short positions.
Eq: Equity in the clients’ accounts
Sector Exposures
There was a general increase in long exposures during April,
reflecting incremental bullishness. There were increases in
the long Prime Brokerage portfolio month-over-month in the
Financial (+0.6%), Consumer, Cyclical (+0.5%), and
Technology (+0.5%) sectors. The largest declines occurred in
the Non sector-specific ETF (-2.1%) and Basic Materials (-
0.4%) sectors.
The largest increases in the Prime Brokerage short portfolio
were in the Energy (+0.8%) and Technology (+0.6%) sectors.
The most substantial decreases in short exposure occurred
with respect to the Non sector-specific ETF (-0.7%) and
Industrial (-0.6%) sectors.
Month-over-month, changes in sector exposures may indicate
that the Prime Brokerage portfolio has become more bullish
on the Consumer, Non-cyclical, Financial and Industrial
sectors, for which there were noticeable increases in long
exposure and declines in short exposure.
Table 3: Long and short exposures by sector
Long (Short) exposure by sector as a percentage of total client long (short) exposure in
Prime Brokerage portfolio
Long exposure Short exposure
Apr-12 Mar-13 Apr-13 Apr-12 Mar-13 Apr-13
Basic Materials 5.6% 5.0% 4.6% 4.5% 5.5% 5.4%
Communications 11.9% 14.5% 14.4% 6.5% 7.0% 6.7%
Consumer, Cyclical 11.4% 10.9% 11.4% 8.6% 8.0% 8.2%
Consumer, Non-
cyclical
15.0% 15.2% 15.3% 10.0% 11.3% 11.1%
Diversified 0.3% 0.3% 0.3% 0.1% 0.0% 0.0%
Energy 9.3% 8.8% 9.1% 6.7% 6.3% 7.1%
Non sector-specific
ETF
3.1% 4.1% 2.0% 15.6% 16.1% 15.4%
Financial 19.0% 17.5% 18.1% 11.8% 11.0% 10.9%
Industrial 6.5% 6.1% 6.4% 5.8% 7.0% 6.4%
Technology 5.3% 4.2% 4.7% 5.4% 7.1% 7.7%
Utilities 1.6% 1.1% 1.2% 1.4% 1.9% 1.8%
Government 5.4% 6.8% 7.2% 15.3% 7.3% 7.2%
Other 5.6% 5.6% 5.4% 8.2% 11.5% 12.1%
Feb-13 Mar-13 Apr-13 Average
First
Quartile
% Change
Market Neutral 4.47 4.34 4.25 3.82 3.54 -2.1%
Equity Long Short 1.94 1.94 2.06 1.82 1.72 6.3%
Multi-Strategy 1.79 1.78 1.80 1.78 1.76 0.8%
Convertible Arbitrage 4.29 4.52 4.25 3.67 3.47 -5.9%
High Grade Fixed Income 2.06 2.24 2.04 2.59 2.38 -9.0%
High Yield Fixed Income 1.42 1.42 1.44 1.22 1.16 1.4%
PB Portfolio (Levered Accounts) 2.59 2.57 2.49 2.52 2.48 -2.9%
0.4
0.7
1.0
1.3
Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13
Net Exposure (LMV/SMV)-1 Net Leverage (LMV-SMV)/Eq

Prime Brokerage Global Hedge Fund Trends – Securities Lending
6
North America Securities Lending
Equities
Market participants remained hesitant to add short exposures
in the face of the ongoing equities rally, which resulted in a
third consecutive month of net covering across the U.S. short
book. Equities drove activity in April as investors focused on
first quarter earnings. Fixed income activity was also skewed
towards covering, while ETFs bucked the trend with a solid
month of shorting. In a sign of higher overall engagement,
gross volume was up by more than 20% month-over-month.
From a sector perspective, the strongest covering occurred in
the Communications, Consumer Cyclical and Industrial
sectors, while Technology and Energy led short activity.
ETFs
As the lone asset class net shorted for the month, ETF short
activity was heavily index-focused on IWM (iShares Russell
2000 Index Fund) and MDY (SPDR S&P MidCap 400 ETF),
with one notable sector play in XLE (Energy Select Sector
SPDR). Covering in SPY (SPDR S&P 500) and QQQ
(PowerShares QQQ Trust, Series 1) ran contrary to the
overall trend, with further sector ETF covering across retail
and technology. Japanese and fixed income ETFs lead with
respect to creation inflows, while emerging markets ETFs
experienced the largest outflows.
Event Driven
Provident New York Bancorp (PBNY) and Sterling Bancorp
(STL) agreed to merge in a stock–for–stock transaction
announced in early April. Sterling shareholders will receive
1.2625 shares of Provident and will ultimately own
approximately 47% of the combined company. Provident
short interest is relatively unchanged since news of the
merger broke, while borrow is available at close to GC rates.
The transaction is expected to be completed by year-end.
General Electric (GE) agreed to acquire Lufkin Industries
(LUFK) in an all cash transaction totaling $3.3 billion.
Lufkin shareholders will receive $88.50 per share and the
transaction is expected to close by the end of 2013. Interest
in Lufkin borrow has been relatively light. Lufkin borrow
remains plentiful at GC levels.
Dish Network (DISH) announced an offer to acquire Sprint
Nextel Corp (S) for $7.00 per share, $4.76 of which will be
cash; the remainder will be in stock. Dish is now competing
with Softbank Corp’s (9984 JP) offer from October 2012.
Short interest in Sprint shares has been on the rise in recent
weeks but borrow is readily available at GC rates.
Fixed Income
The Prime Brokerage fixed income short book was net
covered for a third consecutive month. Only two sectors –
basic materials and energy – saw an increase in the net
market value of shorts. However, with Treasury yields
nearing their lowest levels of the past nine months, there was
a substantial increase in Treasury shorts with a heavy
concentration in the 10-year. J.P. Morgan is now forecasting
that yields on the 10-year will begin to rise towards 2%.
Accordingly, activity around Treasuries in the Prime
Brokerage book is likely to continue. Convertibles remain
active in event driven credits; Lam Research (LRCX),
Newmont Mining (NEM) and Priceline (PCLN) all continue
to see strong flows. In high yield, coal mining, basic
materials and energy names continue to garner strong
interest. Most of the Prime Brokerage flows with respect to
high grade have been concentrated in credits with exposure to
headline risk. Active names include Arch Coal Inc. (ACI),
AK Steel (AKS), Alpha Natural Resources (ANR), Dell Inc.
(DELL), Cliff Natural Resources Inc. (CLF), J.C. Penney
(JCP) and United States Steel Corp (X).

7
Figure 11: Cumulative net activity
Market value change of activity across equities, ETFs, and fixed income
Source: J.P. Morgan Securities Lending
Figure 12: Rolling 1-month daily short flow
Daily Activity Relative to 30-Day Average (LHS) and S&P 500 Index (RHS)
Source: Bloomberg, J.P. Morgan Securities Lending
Table 4: U.S. securities lending trends by sector
For the month of April 2013
5 Day 30 Day 90 Day
Price
Change
Position
Change
(shares)
Price
Change
Position
Change
(shares)
Price
Change
Position
Change
(shares)
Consumer, Non-cyclical 0.3% -0.6% 2.3% -2.3% 9.7% -6.7%
Financial 2.0% 1.1% 2.0% -1.5% 7.8% -5.8%
Technology 4.5% -1.5% -1.9% 22.0% -1.3% 27.1%
Energy 2.7% -1.3% -2.4% -0.4% 1.5% 1.6%
Communications 0.6% -0.6% 2.0% -7.1% 6.3% 0.1%
Industrial 2.3% -1.0% -2.2% -6.8% 1.9% -2.2%
Consumer, Cyclical 3.1% -1.1% 4.6% -5.4% 10.6% -8.5%
Basic Materials 5.4% 0.4% -0.7% 6.0% -9.3% 14.6%
Utilities 1.3% -3.5% 5.2% -11.1% 13.4% -19.2%
Table 5: U.S. securities lending trends by ETFs
For the month of April 2013
5 Day 30 Day 90 Day
Price
Change
Position
Change
(shares)
Price
Change
Position
Change
(shares)
Price
Change
Position
Change
(shares)
SPDR S&P 500 ETF TRUST 1.2% -1.6% 1.9% -6.9% 7.0% 28.9%
ISHARES RUSSELL 2000 1.9% 7.8% -0.3% 23.5% 5.3% 10.0%
ENERGY SELECT SECTOR
SPDR
2.7% 0.0% -1.1% 30.4% 3.0% 18.2%
ISHARES MSCI EMERGING
MARKETS INDEX
3.2% 82.5% 1.0% 73.5% -1.4% 51.6%
ISHARES IBOXX H/Y CORP
BOND
1.0% -10.6% 1.8% -8.9% 0.8% -4.5%
FINANCIAL SELECT
SECTOR SPDR
1.6% 13.6% 2.6% 9.5% 7.6% 58.4%
INDUSTRIAL SELECT
SECTOR SPDR
1.8% -0.6% -0.9% -8.8% 3.1% 38.5%
MARKET VECTORS OIL
SERVICE
3.9% -10.9% -0.4% 106.8% 0.7% 303.7%
CONSUMER STAPLES
SPDR
-1.2% -4.1% 2.9% 10.5% 12.0% -15.8%
SPDR BARCLAYS HIGH
YIELD BOND
0.8% -11.2% 1.5% -4.4% 0.4% 83.8%

‐$10.0
‐$8.0
‐$6.0
‐$4.0
‐$2.0
$0.0
$2.0
$4.0
$6.0
$8.0
1-May 31-May 30-Jun 30-Jul 29-Aug 28-Sep 28-Oct 27-Nov 27-Dec 26-Jan 25-Feb 27-Mar 26-Apr
Equity ETF Fixed Income Net Activity
1,500
1,525
1,550
1,575
1,600
-300%
-200%
-100%
0%
100%
200%
300%
01-Apr 08-Apr 15-Apr 22-Apr 29-Apr
Net Cover Activity (LHS) Net Short Activity (LHS) S&P 500 Index (RHS)

8
International Securities Lending
EMEA
As in prior months, capital raising events were the main
driver for borrow demand in April. There was significant
interest in Commerzbank AG (CBK GY), Koninklijke KPN
N.V. (KPN NA), Bankia SA (BKIA SM) and Meyer Burger
Technology AG (MBTN SW). The spread for the
Koninklijke rights arbitrage grew sufficiently wide to drive
borrow rates higher, with lenders looking for re-rates. There
has been significant recall activity for Bankia, an already
crowded borrow. Its stock price therefore spiked during the
rights trading period. The same is true for Meyer Burger for
which there have been heavy recalls and re-rates. That was
especially true once the stock began trading ex dividend
rights.
In April, Kier Group Plc (KIE LN) announced its proposed
acquisition of May Gurney Integrated Services Plc (MAYG
LN). Borrow for Kier Group subsequently spiked to 4%.
With respect to flows, there has been considerable interest in
Banca Monte dei Paschi di Siena (BMPS IM) for which
borrow tightened in April as lenders saw large sales and
subsequently recalled. There were also significant recalls for
BMPS in anticipation of the annual general meeting (AGM).
Interest also was heavy in Norsk Hydro ASA (NHY NO) as
local lenders recalled stock for the AGM, thus putting
upward pressure on the borrow rate. Hedge funds also sought
borrow in April to increase their short exposure and maintain
excess to protect existing shorts.
Finally, the Glencore/Xstrata merger is now complete.
Consequently, the Prime Brokerage book is seeing borrow at
GC rates.
Asia Pacific Ex-Japan
Korea
As in March, flows remained light in Korea. April saw
renewed demand for Apple-related names. There was an
uptick in short interest for LG Display Co. Ltd (034220 KS)
and Hynix Semiconductor Inc. (000660 KS). Both names
remain highly liquid.
Taiwan
Onshore recalls continued into April as a result of impending
AGM dates. Borrow for stocks with mid-March record dates
returned to the market, which freed up some liquidity. HTC
Corp. (2498 TW) remains a top short after having missed
earnings expectations. However, hedge funds sought to avoid
onshore supply given that it will be recalled again this year
for an impending dividend record date. As in Korea, there
was a focus on Apple-related plays, including heightened
demand for Largan Precision Co. Ltd. (3008 TW) and
Catcher Technology Co. Ltd. (2474 TW).
Singapore
Demand picked up in April after several months of lighter
activity. Fraser and Neave Ltd. (F99) generated significant
interest after the announcement that it would be removed
from the MSCI. Demand also picked up in the shipping
sector, with Sembcorp Marine Ltd. (SMM) leading the way.
While borrow for Sembcorp historically has been liquid,
heightened demand caused liquidity to tighten, with fees
moving north of 1%.
Hong Kong
ETFs again lead the way among short names. Sports apparel
makers lead the way among single names following a year-
long trend as hedge funds have been scouring the consumer
sector for underperformance. Li Ning Co. Ltd. (2331 HK),
which recently was deleted from the MSCI, and Anta Sports
(2020 HK) were the top locates. Investors also are looking at
shorts among Chinese financials. Along those lines, interest
in China Minsheng Bank (1988 HK) increased through April.
Japan
The Nikkei continued its strong rally in April, ending +11.7%
month-over-month. Clients continued to unwind short
positions owing to continued market strength. The Nikkei
plateaued in mid-April, which caused a number of hedge
funds to increase short positions opportunistically. For
example, there was strong interest in automobile names,
including Mazda Motor (7261 JP), Nissan (7201 JP) and
Suzuki (7267 JP). In the real estate sector, short interest rose
for Sekisui House (1928 JP) and Daiwa Office (8976 JP).
Among financials, there was heightened demand for
consumer finance-related names such as Aiful (8515 JP) and
Acom (8572 JP) along with banks such as Mitsubishi UJF
(8316 JP) and Sumitomo Mitsui Financial (8316JP). Finally,
demand was acute for smartphone game-related Gungho
(3765 JP) and Colopl (3668 JP).
Australia
A bearish outlook on rare earth materials prices caused an
uptick in demand for Lynas Corp. Ltd. (LYC AU) at the start
of April. Headlines out of China and Europe regarding
potential competitive threats put Cochlear (COH) in the
crosshairs of shortsellers. Weakness in gold prices drove
demand for Newcrest Mining Ltd. (NCM AU). Cutbacks in

9
capex among mining companies drove increased interest for
ALS Ltd (ALQ AU), Ausdrill Ltd. (ASL AU) and Worley
Parsons Ltd. (WOR). Rio Tinto Ltd. (RIO AU) borrow was
taken down in substantial size as the spread between the AU
and LN listings diverged, providing opportunity for relative
value investors. Prices for thermal coal continued their slide
as a result of which demand for producer Whitehaven Coal
Ltd. (WHC AU) spiked because of mounting short interest.

Prime Brokerage Global Hedge Fund Trends – Institutional Investor Sentiment
10
Institutional Investor Sentiment
North America
In general, many investors seem to be on hold with respect to
new allocations, as they have done significant work over the
last 18 months and are now allowing their existing portfolios
to season. Correspondingly, the bar for investors to add new
allocations is currently very high. In April, the Capital
Introduction Group (CIG) held investor meetings in North
Carolina, Portland, Dallas and Los Angeles. In North
Carolina, investors are on hold with respect to new
allocations, as several groups are in the process of
concentrating their portfolios. Investors in Dallas were
interested in learning about new launches, but solely for
informational purposes. In Portland, CIG met with several
regional consultants among which equity long short strategies
are currently in favor. While interest in new launches among
those allocators was keen, early-stage investing is rare for
this group. In Los Angeles, finally, investors are more
interested in fundamental strategies than systematic
strategies. Several allocators expressed a preference for
smaller managers, albeit with fee discounts and via separate
accounts.
Consultants
In an effort to differentiate themselves, several consultants
are beginning to look further down the AUM spectrum and
consider emerging managers.
Funds of Hedge Funds (FoFs)
Among larger FoFs, interest in credit is declining, as equity-
biased strategies are now in favor, including lower net and
activist managers.
Endowments & Foundations (E&Fs)
Long short and event driven equities are of primary interest
among E&Fs. Global macro is of secondary interest. Certain
Tri-State area E&Fs are taking a pause with respect to new
investments, as those groups are giving recent allocations
time to season.
Other Strategies of Interest
CIG has received several requests regarding women- and
minority-owned managers, socially responsible funds,
reinsurance and longer-duration vehicles.
EMEA
Several European investors have made inquiries regarding
“differentiated” equity strategies, including managers with
longer-biased, concentrated portfolios and uncorrelated,
trading-oriented equity funds. It should be noted though, that
new allocation activity among European investors remains
muted. Interest in structured credit continues to wane.
Generally, European investors are not making any new
allocations to this strategy and some investors are reducing
such allocations. Several European investors, primarily FoFs
and private banks, report that outflows have abated. Certain
of those allocators have even started to see inflows.
Asia Pacific
Investor interest in equity-biased, directional strategies is on
the rise. Interest in structured credit among Asia Pacific-
based investors also is increasing. There has also been an
uptick in interest in Asia-based managers from consultants’
clients in the region. Accordingly, consultants’ Asian offices
have started to increase staffing for local hedge fund
research. Investors continue to seek out strategies that can
provide uncorrelated alpha.
Notably, Albourne Partners’ Open Protocol Risk Aggregation
system was endorsed by the Australian Prudential Regulatory
Authority (APRA). Albourne’s system for reporting hedge
fund holdings may therefore become more widely adopted in
Australia as the Stronger Super reforms are rolled out across
the country.
Table 6: Investor strategies of interest by region5
Americas Europe Asia-Pacific
Direction of
Interest
Level of
Interest
Direction of
Interest
Level of
Interest
Direction of
Interest
Level of
Interest
Convertible
Arbitrage
Neutral Neutral Neutral
Distressed Neutral Neutral Neutral
Equity Long
Short
Increasing Increasing Increasing
Event
Driven
Increasing Increasing Neutral
Macro Neutral Neutral Decreasing
CTA Decreasing Neutral Neutral
Market
Neutral
Neutral Neutral Increasing
Structured
Credit
Decreasing Neutral Increasing
Legend
Low Interest
Medium Interest
High Interest
Source: J.P. Morgan Capital Introduction Group
5
This information comes from CIG conference calls and meetings with global hedge
fund managers and institutional investors. This table represents views of the CIG team
and may not be completely exhaustive.

Prime Brokerage Global Hedge Fund Trends – Market Perspectives
11
April Commentary
Although April delivered some disappointing economic
news, a number of data points emerged that bode well for
growth in the U.S. (and, by extension, the global economy).
For example, private final sales rose at an annualized rate of
+3.3% and new home sales increased by another +1.5% in
March. House prices are running 7% to 11% above their
levels from a year ago as the recovery in residential real
estate continues. The inventory of existing homes for sale, a
key variable impacting house prices, remains close to
housing boom-era lows. Home price appreciation is therefore
likely to continue. The unemployment report for April also
delivered positive news with 165,000 nonfarm payrolls
created, which caused the unemployment rate to drop to
7.5%, its lowest level since the financial crisis. Additionally,
real consumer spending rose at a robust +3.2% during the
first quarter.
However, real GDP rose at an annualized rate of only 2.5%
in the first quarter. While that pace was much improved from
the fourth quarter’s anemic 0.4%, it nonetheless fell below
expectations by roughly half a percentage point. Earlier in the
year6
, we noted that government cutbacks could exert a drag
on growth, which is now occurring. During the first quarter,
government spending contracted by -4.1%. Defense spending
fell by a much steeper -11.5% over the same period. While
predictions that sequestration would throw the economy into
a tailspin fortunately failed to materialize (particularly for
commercial air travelers), the pullback in federal outlays is
serving as an unmistakable weight on the heels of what
remains a tepid recovery.
Despite the sclerosis in Washington, a consensus seems to
have congealed among policymakers that federal spending
should be curtailed to reduce the deficit in both the short run
and over the long term. It seems, therefore, that government
will continue to exert a drag on growth in the coming years,
potentially blunting the recovery.
The following sections are excerpts from J.P. Morgan
Research publications. The full publications can be
accessed via the sources provided in the footnotes below.
6
J.P. Morgan Prime Brokerage, Global Hedge Fund Trends, March 12, 2013.
Key Currency Views: April 2013 7
The aggressive monetary easing by the BoJ is expected to
push the yen lower through (1) lower nominal JGB yields via
aggressive JGB purchases, and (2) higher inflation
expectation due to their strong commitment to a 2% inflation
target. In theory, the combination of lower nominal rates and
higher inflation expectation means Japan’s real interest rates
would move much lower, resulting in a weaker JPY. The US-
Japan real interest rate differential, which is calculated using
actual inflation rates in the US and Japan, has had a good
correlation with USD/JPY. This correlation suggests that if
the market prices in 2% inflation in Japan, USD/JPY could
appreciate to around 105. Before the BoJ announced
aggressive easing on April 4, we had thought that it unlikely
that the market would price in 2% inflation, and thus unlikely
that USD/JPY would rally significantly above 100. However,
after the aggressive easing on April 4th, the possibility that
the market prices in 2% inflation seems to have heightened.
Unprecedented monetary easing by the BoJ is expected to
push long-end JGB yields lower (our JGB strategists expect
10y JGB yield to decline to 0.25% in coming months). This
has heightened speculation that Japanese investors will be
forced to eventually shift their money abroad, as domestic
investment conditions will become difficult given the super
low yields. W e are skeptical about this narration and believe
that even if this materializes, FX impact would remain
uncertain as lower JGB yields should make FX-hedged
foreign bond investments more attractive. However, it’s
likely that this speculation will weigh on JPY for a while.
Global Data Watch: EM Corporates Seem Sluggish8
The global economy is in transition. Growth has picked up
from a low base as drags from tightening credit outside the
US fade, easy money gains traction, and the removal of
significant tail risks bolsters sentiment. However, the damage
from a prolonged period of subpar growth lingers in the form
of a corporate margin squeeze. In addition, the phase of an
intense developed market fiscal adjustment that began last
year is continuing as the US is now absorbing a substantial
fiscal drag. If we are right, these conflicting forces will allow
a choppy return to trend growth to continue. To be sure, the
latest news has been disappointing and the risks to our
current-quarter global GDP forecast of 2.7% (trend is 3%)
7
J.P. Morgan Global FX Strategy, Key Currency Views: April 2013, April 19, 2013,
J.P. Morgan Markets, https://jpmm.com/research/content/GPS-1099959-0.
8
J.P. Morgan Economic Research, Global Data Watch, April 26, 2013, J.P. Morgan
Markets, https://jpmm.com/research/content/GPS-1107480-0.

12
have shifted to the downside. However, we do not see tail
risks on the horizon and the underlying dynamic in place—of
supportive monetary policies, healing credit markets, and
soon-to-fade fiscal drags—remains consistent with a gradual
transition to stronger growth
Most notable in the recent news is the downshift in the
industrial sector. A rebound in manufacturing output and
business surveys at the start of the year does not appear to be
delivering the above-trend 1Q GDP signaled by our nowcast.
And while we have been looking for growth momentum to
wane, the message from the April surveys is weak. Flash
manufacturing PMI readings were lower than expected in the
US, China, and the Euro area and suggest that global
manufacturing output might be stalling. A sharp up-and-
down swing in global industry is not a particular concern
given the volatility in inventory behavior in recent years, but
the drop in the orders-to-inventory ratio in the flash PMIs
raises concern that final demand growth is growing more
slowly than anticipated.
There is limited information available regarding the
composition of final demand growth last quarter, but we
believe that sluggish EM business spending is the main
source of disappointment. We have been highlighting the
damaging combination of subpar global growth and
weakening pricing power in goods industries for EM profit
margins—particularly as labor costs continue to rise at a
rapid pace. Investment spending has been sluggish in recent
quarters—in absolute terms and relative to consumer
demand—and does not appear to be lifting during 1H13 as
we had expected. Weaker-than-expected manufacturing
sector investment and stockbuilding contributed to last
quarter’s growth disappointment in China, and we expect this
pattern will be evident in GDP releases across the EM more
broadly.
It would be wrong to expect a quick rebound in EM business
spending. The latest IIF survey of EM bank lending officers,
conducted from mid-March through mid-April, found that a
modest net majority of EM banks continue to tighten credit
standards. However, the survey also suggests that the
pressure to tighten is easing. Banks no longer perceive
funding conditions as tight and a significant rise in NPLs
appears to be leveling off. This improvement, if sustained,
should give banks an incentive to stop tightening standards.
Europe’s future will be shaped by politics in the South9
European crisis management is centered on the principle of
conditionality—the application of macroeconomic
adjustment by debtor countries in return for access to external
support. The German government’s commitment that there
will be “no liability without control” has become Europe’s
guiding political maxim; an inter-state equivalent of “no
taxation without representation.” This approach has become
clearer than ever in the post-Cyprus world (see A. White, The
Importance of a Germany that can say no).
The difficulty with this approach, in our view, is that it
assumes that the debtor countries have the institutional
capacity to consistently implement their side of the bargain. It
also assumes that the general public in the debtor countries
shares the same political and normative values as Germany
and the European North (or can be persuaded to acquiesce to
them) in a way that will embed the prevailing approach to the
management of EMU. In reality, both assumptions are
questionable, in our opinion. Near term, the constitutional
and political settlement in the South has created impediments
to the implementation of fiscal restraint. The region has
demonstrated its capacity to address this through the use of
various “work-arounds,” including the imposition of
technocratic administrations and rule by decree (both of
which have proved deeply unpopular).
This approach appears to have been partly successful in
delivering greater fiscal consolidation in the short term. In the
medium term, however, the southern economies will likely
need to embrace deeper structural reform if they are to
deliver sustained growth. This will likely require a degree of
political commitment that goes beyond what is achievable
through the work-around approach. Finally, in the long term,
we believe the South will need to internalize a vision of Euro
area management (EMU Mark II) that is largely based on
northern European precepts. Without this, in our view, a
broader clash of approaches to EMU will be hard to avoid
(the German view is that domestic dysfunction within the
periphery must be addressed before more substantive
integration can occur).
The recent intervention by the Portuguese Constitutional
Court, which threw out aspects of the 2013 Budget, is a case
in point. In our view, the near-term solution is for the
Portuguese government to prepare additional measures that
9
J.P. Morgan Economic and Policy Research, Economic Research Note, April 26, 2013,
J.P. Morgan Markets, https://jpmm.com/research/content/GPS-1106830-0.

13
meet the requirements of its assistance program and are
compatible with its constitution. Longer term, we believe
Portugal needs to ensure that its constitutional settlement and
the requirements of EMU membership—as well as broader
fiscal realities—are not in conflict. The European South still
has a long political journey ahead of it, and we expect its
response will shape the region’s future in the short, medium,
and long term.

Important Information and Disclaimers
14
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Brokerage business for informational purposes only. It is not a
product of J.P. Morgan’s Research Departments. This Material
includes data and viewpoints from various departments and
businesses within JPMorgan Chase & Co., as well as from third
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The generalized hedge fund and institutional investor information
presented in this Material, including trends referred to herein, are
not intended to be representative of the hedge fund and institutional
investor communities at large. This Material is provided directly to
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may it be provided to retail clients.
This Material has not been verified for accuracy or completeness by
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hedge funds employ certain trading techniques, such as the use of
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