The Eurekahedge European Hedge Fund Index was up 5.16% as of October 2019 year-to-date, supported by positive geopolitical developments surrounding Brexit and accommodative ECB policies. The region’s underlying equity market, as represented by the MSCI AC Europe IMI gained 15.79% over the same period. The slowing economic growth in the region remained as the central bank’s primary concern, particularly after Germany’s gross domestic product contracted in Q2 2019, raising concerns over a recession. In response, the ECB enacted a deposit rate cut and restarted their asset purchase programmes in September, which boosted the equity market in the region. The DAX and CAC40 were up 21.86% and 21.12% respectively since the start of the year. The UK market was spooked by PM Boris Johnson’s firm stance towards no-deal Brexit and decision to prorogue the parliament in August, resulting in a 5.00% decline of the FTSE100 over the month. However, the situation has reversed as the PM reached an agreement with EU leaders, which prompted the latter to grant a third deadline extension for Brexit.
The European hedge fund industry assets under management (AUM) stood at US$462.7 billion as of October 2019, down US$37.2 billion from the end of 2018 figure, mostly attributed to investor redemptions, following the trend from last year. European hedge fund managers have recorded investor outflows of US$13.4 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 October 2019, the European hedge fund industry population stood at 3,781 hedge funds, up from 3,715 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 wasn’t 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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