Introduction
The Eurekahedge European Hedge Fund Index was up 2.96% year-to-date as of May 2019, trailing behind the region’s underlying equity market as represented by the MSCI AC Europe IMI which gained 8.92% over the same period. In 2018, European hedge fund managers posted losses under the combined onslaught of Brexit negotiation uncertainties, the Italian debt crisis and the escalation of the US-China trade war. The region’s hedge fund industry recorded its worst yearly performance since the 2011 Eurozone debt crisis. Going into 2019, domestic uncertainties, particularly Germany’s slowing economic growth and the breakdown of Brexit negotiations continued to plague investor confidence in the sector. The region’s slowing economic growth led to the European Central Bank’s decision to reconsider their stance and shift to an expansionary monetary policy to provide relief for the market. On the other hand, despite the extension of the Brexit deadline, Theresa May’s failure to garner support for her Brexit deal in the parliament – which culminated in her resignation as the prime minister – raised concerns over the possibility of a no-deal Brexit. The increased likelihood of a no-deal Brexit may result in foreign investors cutting their allocation to UK assets, leading to a significant blow to the UK hedge fund industry.
The European hedge fund industry assets under management (AUM) stood at US$485.9 billion as of May 2019, down US$14.1 billion from the end of 2018, mostly attributed to investor redemptions, following the trend from last year. European hedge fund managers have recorded investor outflows of US$15.1 billion last year, as the various political and economic concerns plagued the region’s hedge fund industry outlook. On the other hand, fund population within the region grew slightly since the end of 2018, in spite of the challenges posed by expensive regulatory compliance processes and competition from other alternative investment vehicles. As of May 2019, the European hedge fund industry population stood at 3,754 hedge funds, up from 3,714 by the end of 2018.
Figure 1: Industry growth in recent years
The European hedge fund industry assets grew at an impressive rate during the period preceding the global financial crisis in 2008. By the end of 2007, industry AUM stood at US$464.3 billion following seven consecutive years of double-digit annual growth since the end of 2000. The performance-driven losses and investor redemptions during the financial crisis decimated the European hedge fund industry assets, and it was not until 2014 that the industry AUM recovered to levels seen before the 2008 crisis due to the economic slowdown inflicted by the European debt crisis which escalated in 2011.
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