Hedge funds suffered a 0.36 per cent drop in April, according to the HFRI Fund Weighted Composite Index issued by Chicago-based Hedge Fund Research, compared with a first-quarter rise of 4.79 per cent.

The 4.79 per cent gain was the highest first-quarter gain since 2006. In April, however, returns were hit by renewed investor concerns about the fate of the eurozone and the debt positions of countries such as Spain and France.

Total hedge fund capital increased to a record level of $2.13 trillion.

Hedge fund performance by strategy was mixed for April, underscoring the varied themes and drivers of performance throughout the month. The HFRI Relative Value Arbitrage Index posted a gain of 0.21 per cent, the fifth consecutive monthly gain for this index, with positive contributions from fixed income arbitrage, volatility arbitrage and asset backed exposures.

Equity hedge was the weakest area of performance, posting a decline of -0.57 per cent, the first monthly decline for this index in 2012, reducing the year-to-date gain for the HFRI Equity Hedge Index to 6.33 per cent.

Macro strategies also posted a decline for April, with the HFRI Macro Index declining by -0.35 per cent, as declines across systematic and discretionary strategies only partially offset gains in active trading funds.

The HFRI Event Driven Index posted a narrow decline of -0.16 per cent, also the first monthly decline of 2012, as gains in activist and credit arbitrage strategies were offset by losses in distressed and special situations funds.