The Elstree Enhanced Income Fund returned -5.62% in December, reducing its 2008 return to -36.4%. The December return underperformed the All Ordinaries Accumulation Index (0%) and the UBS All Maturities Bond Index (-1.2%).

Elstree attributed December's disappointing result to a decline in price in an AXA hybrid security, in which the fund has a 10% holding, due to forced liquidation. The fund was also negatively affected by an early redemption of the Allco Alleasing hybrid at a discounted price.

In their annual credit risk analysis, Elstree noted that the averaged corporation is currently not highly geared, and in general leverage has not increased this decade.

Prodigal's Absolute Return Fund performed strongly in December with the manager reporting an estimated gain of 6%. The fund has lost -19.96% over the year but, after the second positive month in a row, the manager says that they expect the rapid rate of recovery to hold over coming months.

The fund employs a mix of strategies including quantitative trading, capital structure arbitrage, convertible arbitrage and risk arbitrage. With a geographic mandate covering Asia (excluding Japan) the main markets currently invested in are Australia (34%), Hong Kong (17%, and India (also 17%).

MM&E Capital saw small losses both of their Investment Trusts, No. 1 and 2, in December. Trust No.1 recorded a loss of -0.98% for the month, bringing it's return for the year to -4.88%, while Trust No.2 was down -1.01% for the month and -5.98% for the year. The manager has exited a loss making position in Indophil Resources after the company revealed that, despite assurance to the contrary, a takeover deal with Alsons Corporation may not proceed.

Trust No. 1 is MM&E Capital's oldest fund with an inception date of July 2002 and approximately A$69.9 million under management. Trust No. 2 began investing in July 2004 and currently has A$9.9 million under management. Trust No. 1 is closed to new investors while Trust No. 2 is currently open with a minimum investment amount of A$25,000. Both Trusts aim to deliver returns of 15% p.a. (gross of fees) with volatility of 5% p.a. or less regardless of movement in the equity market index. Trust No. 2 is managed in a near identical fashion to Trust No. 1 and neither Trust employs leverage.

MM&E Capital is a dedicated Australian event driven hedge fund manager which employs strategies in takeover and demerger arbitrage, convertible securities arbitrage, capital raisings (i.e. IPOs, Placements, Sell Downs and Rights Issues) and Buy/Write dividend stripping.

MM&E Capital's Takeover Target fund had a positive month in December with a gain of 1.19%, but remains down -30.84% over the year.

The manager said that profits were realised from a holding in Incitec Pivot while ongoing positions in Helthscope, Origin Energy and Insurance Australia Group all rose in value.

The Fund uses an event driven strategy where medium term (6-24 months) positions are taken in ASX listed stocks that meet the internal selection criteria.

Plato Asset Management's Core Composite (long only) and Core Composite 130/30 have reported significantly improved performance in December, while their Market Neutral fund recorded its worst month since inception.

The Core Composite fund was down -1.43% for the month after falling -32.18% in the three months to November. Similarly, the 130/30 fund fell -1.78% which was a good result compared with a total drop of -31.89% during the three preceding months.

Plato's Market Neutral fund managed to avoid any significant losses throughout 2008, but a fall of -4.2% in December has left the fund with a negative return for the year of -2.75.

Blue Fin Capital's Managed Commodities Account ended 2008 on a positive note with a return of +1.78% in December, bringing its 2008 return to +11.43%.

Positive returns were generated through the fund's strategies in grains, softs and metals, although these were partially offset by negative returns in energies. The fund however underperformed against its benchmarks, the CSFB Managed Futures and Barclays Systematic Index, which returned 15.59% and 16.10% respectively in 2008 (to November). The Managed Commodities Account employs short term trading approaches in North American commodities futures markets, combining quantitative trading strategies with a robust risk management framework.

Attunga's three funds all reported negative returns for December - the Enviro Opportunities Fund returned -8.53% (-6.75% YTD), the Power & Enviro (Offshore) Fund -5.81% (-8.19%) and the Agricultural Trading Fund -2.05% (+22.42%).

Attunga blamed the lack of weather stimulus for high electricity prices at the start of summer as a significant driver of the December results. The commissioning of new power stations, as well as fewer active traders in the market over December also affected returns. For the Agricultural Trading Fund, lower crude oil prices and losses on US wheat spreads offset gains on volatility spreads in other commodities.

The Austral Equity Fund recorded a return of +0.45% in December, bringing its 2008 return to +1.30% and its 2009 financial year return to +2.90%.

The fund's positive return came amidst less volatile market conditions in December, although overall liquidity in equity markets was low. As a result the fund's trading activity was relatively low, the fund's return being mainly attributed to existing interest rate securities positions. The Austral Equity Fund is an event driven fund which invests mainly in Australian companies that are, or may be, involved in special situations or corporate events.

Australia's Sydney Morning Herald (SMH) has reported that the Westpac controlled BT Investment Management wrote to investors before Christmas advising they were freezing redemptions on its $1.2bn Global Return Fund.

The SMH article cites BT believing that "unstable market conditions ... assets cannot be realised at prices that would be obtained in a stable market."

Management of the Global Return Fund was apparently outsourced to Grosvenor Capital Management in Chicago who are claimed to manage US$23bn. Grosvenor had taken action to segregate a portion of the less liquid assets.... and as a result are not currently available to meet redemptions in the fund. However, Grosvenor itself has not suspended redemptions from its own master fund.

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.