In the latest of a series of articles commenting on global regulatory developments in cryptocurrency, this client alert explores recent regulatory engagement with the token market (with a particular focus on Europe) and looks ahead to proposals for 2018. Gibraltar’s ICO regulations, as well as the Swiss regulator’s publication of ICO guidelines have arguably set the tone for an interesting year in the developing regulatory landscape.
The Eurekahedge Hedge Fund Index gained 7.32% as of November 2017 year-to-date, and is on track to post 12 consecutive months of positive gains in an annual year for the first time since 1999. Total assets managed by the global hedge fund industry currently stands at US$2413.0 billion, up US$188.2 billion over the year, which is the highest annual growth recorded since the end of 2013.
Eurekahedge’s global hedge funds infographic sums up the industry as at January 2018. Find out more about global hedge funds assets under management (AUM), asset flows into strategic and regional mandates, strategy returns, fund size and geographic AUM, head office locations and the best and worst performances of the year.
The global hedge fund industry is on track to post a solid recovery in 2017as underlying markets trend upwards against the backdrop of subdued volatility in asset prices. The Trump presidency which was expected to spook market sentiment has been surprisingly constrained so far with regards to delivering on the campaign agenda, in particular policies pertaining to global trade. Rather, expectations of a fiscal expansion in the US lend support to markets early during the year while his first tour as President of the United States helped calm nerves overseas, barring the odd-handshakes and other presidential antics. Risk appetite generally improved during the year, with equity long bias strategies posting double digit gains whilst returns for macro and systematic managed futures strategies languished in a low volatility regime.
The global funds of hedge funds industry ended annual year 2016 with dampened investor enthusiasm with redemptions totalling US$46.4 billion for the year. Multi-managers’ performance took a slight beating over the past year, with the Eurekahedge Fund of Funds Index declining 0.12%, underperforming their hedge fund and long-only counterparts which gained 4.50% and 7.65% respectively. Going into 2017, multi-managers have posted impressive gains for Q1 2017, up 2.05% while single and long-only managers gained 2.35% and 6.65% over the same period respectively.
2016 has been quite a nerve-wrecking year as the global hedge fund industry anticipated and responded to a string of unexpected events. As such, market jitters were very much present for investors as the results of two major events which had happened - Brexit and the US Presidential Elections, had caught the world by surprise. The global hedge fund industry faced steep redemption pressure from investors this year, with total net outflows coming in at US$28.2 billion. On the other hand, managers posted good performance-based gains, up US$17.8 billion over the same period.
Eurekahedge’s global hedge funds infographic sums up the industry as at January 2017. Find out more about global hedge funds assets under management (AUM), asset flows into strategic and regional mandates, launches and closures, fund size, head office locations and the best and worst performances of the year.
The first half of 2016 was certainly eventful as financial markets anticipated and reacted to global developments. Emerging market assets performed strongly towards the second quarter of the year as oil and commodity prices showed signs of recovery. Events in the developed world have also added to heightened volatility in the markets, especially in the days leading up to the Brexit referendum with investors fleeing to safe haven assets.
Eurekahedge’s global hedge funds infographic sums up the industry as at August 2016. Find out more about global hedge funds assets under management (AUM), asset flows into strategic and regional mandates, launches and closures, fund size and geographic AUM, head office locations and the best and worst performances of the year.
The world economy had a shaky start in 2016 with investors flocking to safe haven assets amid a volatile market environment. The global hedge fund industry’s asset base contracted US$20.1 billion as of February 2016 year-to-date, with performance-driven losses a main contributor to this contraction. Performance-based losses stood at US$16.6 billion in the first two months of 2016 alone, while investor outflows of US$3.5 billion were recorded. The assets under management (AUM) of the global hedge fund industry currently stand at US$2.22 trillion, managed by a total of 11390 hedge funds. Going into 2016, further easing seems to be a main theme as central bankers worldwide have largely adopted accommodative monetary policies in an attempt to re-energise the current lethargy of the world economy.
Eurekahedge’s global hedge funds infographic sums up the industry as at April 2016. Find out more about hedge fund assets under management (AUM), asset flows into strategic and regional mandates, launches and closures, lifespan of active and obsolete funds, and the best and worst performances of the year.
The global hedge fund industry has seen a steady increase in its asset growth after experiencing uninterrupted redemption pressure in the second half of 2014, with asset growth totalling US$93.0 billion for the first half of 2015. Much of this growth is attributed to excellent performance-based gains which account for US$51.7 billion, together with continued investor inflows accounting for US$41.3 billion.
There has recently been a wave of global regulatory reforms which affect fundraising. These changes are far-reaching and can impact how fund managers structure funds, their proposed investor base, how and where funds are marketed, the remuneration that may be received, registrations that may be required and dealings with investors.
Global hedge funds have maintained a steady pace of growth building upon the strong gains seen in 2013, with new investor allocation activity totalling US$40.8 billion in the first eleven months of 2014. Combined with excellent performance-based gains of US$76.5 billion delivered by hedge fund managers, this puts the current assets under management (AUM) of the industry at US$2.13 trillion – another new high.
Global hedge funds have maintained a level of growth comparable with the strong gains seen in 2013, with robust allocation activity totalling US$65.3 billion in the first half of 2014. Combined with excellent performance-based gains of US$40.3 billion delivered by hedge fund managers this puts the current assets under management (AUM) of the industry at a new high of US$2.12 trillion. The global hedge fund population now stands at 10,844 funds strong as at June 2014.
Founded in 2006, Quantedge is a quantitative global macro hedge fund with offices in Singapore and New York.
Global hedge funds have had a good run in 2013, with the industry attracting net asset flows of US$127.4 billion in the first 11 months of the year. This robust allocation activity, combined with excellent performance-based gains of US$85.6 billion delivered by hedge fund managers puts the current assets under management (AUM) of the industry at US$1.99 trillion.
After witnessing excellent performance-based gains in 2012, hedge funds continued the momentum in 2013 while also witnessing allocations from investors. The industry has attracted net asset inflows of US$56.9 billion during the first five months of 2013 in stark comparison to last year which saw net outflows of US$3.8 billion over the course of 12 months. The robust allocation activity along with continued positive performance has brought the AUM of the industry to US$1.88 trillion as at end-May 2013.
Hedge funds started off 2013 in a strong fashion with the industry delivering excellent returns and also attracting capital from investors. Currently the size of the industry stands at US$1.8 trillion and is set to hit its historical high in coming months.
The global hedge fund industry has witnessed two distinct phases during the first half of 2012: two months of strong performance and positive asset flows, followed by four months of negative performances and net outflows. Currently the size of the industry stands at US$1.75 trillion, managed by over 10,000 funds.
Global hedge funds witnessed remarkable and divergent trends in 2011, delivering negative performance but also attracting net positive asset flows for the year. As at end-December 2011, the total size of the industry stood at US$1.7 trillion while the Eurekahedge Hedge Fund Index finished the year in negative territory with a decline of 4.02%
Despite an environment of increasing uncertainty in the markets, the global hedge funds sector has witnessed some strong trends in the first half of 2011. Chief among these trends: the industry attracted record inflows in the first 6 months of the year. As of end-June 2011, the size of the industry currently stands at US$1.81 trillion.
The global hedge fund sector continued its robust recovery from the global financial crisis throughout 2010. The industry has witnessed strong inflows since the second quarter of 2009, while hedge funds across all regions and strategies delivered positive returns for 2009 and 2010, with some indices posting record gains during this period. The Eurekahedge Hedge Fund Index was up 10.99% in 2010.
While Australian superannuation funds were among the earliest globally to invest in hedge funds, the level of this investment has not increased at the same pace as in other jurisdictions.
Given the recent developments in hedge fund practices and investment practices generally, it is opportune to examine superannuation fund investment in hedge funds, for the regulator to restate its expectations when hedge funds are part of a superannuation fund investment portfolio, and to review lessons from the global financial crisis.
In our sixth monthly review of the global hedge fund industry, we revisit some of our previous analyses, such as strategic asset flows, distribution of new fund launches and performance comparisons, and also conduct new studies into areas such as average life span, survivorship and capital inflows into the different regions.
Over the last decade, the global hedge fund industry has undergone exponential growth both in terms of assets under management and number of funds. Hedge fund assets hit their peak in June 2008 at US$1.95 trillion – a seven-fold increase since end-1999 – before declining due to drying-up liquidity, the collapse of some large financial institutions, tumbling equity markets and the resultant spike in risk aversion, which led to widespread redemptions.
In the emerging sphere of supranational macro-prudential supervision, an important debate is progressing among global policy-makers. Throughout the G20, policy-makers and practitioners are attempting to solve one of the fundamental challenges posed by the recent crisis: how to construct a global system of oversight and supervision that is capable of identifying the build-up of excesses and stresses in the financial system, and how best to address such warning signs in a timely and effective manner.
Emerging economies now capture a larger share of global private equity activity than ever before and the markets are quickly maturing as investors take more controlling stakes in companies.
Statistics from the Emerging Markets Private Equity Association (EMPEA) showed that the emerging markets share of global private equity fundraising has risen from 5% in 2004 to 20% as of June 2009 and from 7% to 24% of global private equity investment totals during the same period.
2009 has been a year of mixed fortunes for funds of hedge funds, witnessing record redemptions through most of the year while at the same time, posting one of the best performances year-to-date. The Eurekahedge Fund of Funds Index has gained 9.17% November YTD and is on track to have the best year since 2003. In terms of asset flows, however, 2009 has been the worst year on record, witnessing net redemptions of US$164 billion November YTD.
The global hedge fund industry has seen exponential growth over the past decade, with hedge fund assets peaking in mid-2008 at US$1.95 trillion – a seven-fold increase since the start of 2000. However, the drying up of liquidity, the collapse of some large financial institutions, a spike in risk aversion, tumbling equity markets and the resultant spate of redemptions saw assets shrinking by nearly a third, hitting a low of US$1.29 trillion as at end-April 2009.
The Alternative Investment Management Association (AIMA) is the global hedge fund industry association representing, amongst others, the managers of more than 70% of the world’s hedge fund assets, and including fund of hedge funds managers, prime brokers, legal and accounting firms and fund administrators. On 27 July 2009, AIMA issued a warning that the European Commission’s draft directive on alternative investment fund managers would be damaging both to fund managers and investors globally, if enacted into European law. This warning also marked the first time that AIMA, which has 1,100 corporate members in 40 countries, has felt the need to coordinate a global press release. Why is AIMA so concerned?
2008 will be long remembered as the year of the liquidity crisis. Within a few months, the competitive landscape of global financial intermediaries was reshuffled. With credit markets frozen, the main equity markets suffered decline of 40% or more and continue to display staggering volatility not seen in generations. The most visible early casualties of the crisis were the large independent investment banks. With governments in Europe and the US now being shareholders in a wide array of financial institutions, the financial world has changed for good. And it is reasonable to expect that more changes are on the way. These tumultuous times have a profound and lasting impact on the hedge fund industry.
After a very strong 2007, hedge funds faced a challenging year in 2008 (particularly the latter half) in the face of high volatility, collapsing banks, drying up liquidity, heightened investor risk aversion and severe redemption pressures. Against this backdrop, hedge funds had their worst year on record with the Eurekahedge Hedge Fund Index ending the year down 12.5%.
Hedge funds continue to attract capital amid turbulent markets and slowing global economic growth, as lowered risk appetites drive investors to seek superior returns for their risk dollars. We currently estimate the size of the global hedge fund industry at near 8,200 single manager funds that together manage assets to the tune of US$1.95 trillion (as at end-June 2008), and expect industry assets to breach the US$2 trillion barrier by end-2008. Figure 1 illustrates the pattern of growth traced by single-manager funds over the past decade.
Over the last few years, financial institutions offering Islamic products have taken a number of important steps to keep pace with developments in the global private equity and venture capital industry. As private equity and venture capital investments become increasingly sophisticated and innovative and seek new pools of investors, including Islamic investors, growth in Islamic private equity and venture capital funds can be expected to mushroom.
The private equity industry has been on a tremendous expansionary cycle in recent years, following the technology sector-led slowdown between the years 2000 and 2003. For instance, for the year 2005 alone, industry estimates put the total amount of private equity fund raising at over USD230 billion (a 75% jump over the 2004 figure), and the total size of private equity investments at USD135 billion (up 20% on the previous year’s number).
The current size of global hedge fund assets is estimated at US$1.5 trillion, representing a compound annual growth rate in assets of about 40% over the past five years. As the hedge fund industry takes on a more mainstream aspect and caters to a broader investor base, the question of redemption frequency (the length of time that needs to elapse before an investor into a fund can redeem their assets) and its relationship to fund performance is becoming increasingly relevant.
The global hedge fund industry is currently valued at slightly over US$1.5 trillion, growing five-fold in as many years. With increasing interest from institutional investors such as pension and endowment funds, and a deepening value chain (the emergence of data vendors, fund incubators and third-party marketers catering to hedge fund investor needs), the industry has taken on a more mainstream aspect. This has boosted the pace of new launch activity, and with it, the rate of attrition in the industry.
Increased attention from international players has made local markets increasingly competitive and liquid, with strong unsatisfied demand chasing increasingly scarce assets and resulting in significant yield compression. Improving transparency levels and the lowering of foreign investment barriers are facilitating the movement of real estate towards a truly global asset class.
With information on close to 2,000 global funds of funds now in our database, we decided to take a closer look at the fees charged by these funds. And sure enough, the analysis tossed up some interesting findings, presented here in this write-up.
The performance and management fees for the 1,105 funds surveyed averaged 8.7% and 1.3% respectively. Looking at the distribution of these funds by performance fees charged (Figure 1), one sees that a fee of 10% is the norm (accounting for almost half of the funds), and that it is skewed towards the lower end of the fee spectrum (accounting for another one-third of the funds).
Hedge funds got off to a running start to the year, with the Eurekahedge Hedge Fund Index rising a handsome 3.2% for the month of January. With the exception of Japan, which had to contend with choppy markets intra-month, all the regional indices returned upwards of 3% for the month. Global investors anticipating an end to the Fed tightening cycle in the near term, spurred equity markets across the board onto healthy gains.
New York-based StoneWater Capital is founded and run by a group of partners with significant public and private equity investment experience. Founded in 2004, StoneWater Capital is a specialised asset management firm and manages over US$150 million in a global family of long bias fund-of-hedge fund vehicles as well as custom vehicles and other investments.
The boom in the fund of hedge funds (FOF) industry in 2003 was a hard act to follow. Although the number of launches was down from the previous year, total asset inflows continued at a record pace. Cynics predicted that the massive inflows of that year and slack regulation would be pursued by a rude awakening in the form of whittled returns, bloated portfolios and whip-cracking regulatory commissions searching to make an example as a warning to speculative, secretive managers, who have been blamed for almost every market shift this year - from oil price increases to fraud allegation-induced collapses in companies' stock prices.
The recent spectacular corporate collapses of Enron, WorldCom and Tyco in the United States, Parlamat in Europe and HIH in Australia have wiped out billions of dollars of shareholder funds and have exposed serious shortcomings in corporate governance - the system by which companies are directed and managed.
Technology has proven to be a boon to hedge fund managers and investors alike over the past seven years. What was once an arduous search and investment process primarily performed in person and through word of mouth has become a seamless process almost entirely managed from the comforts of your office. Indeed, the introduction and proliferation of hedge fund database and analysis platforms, web sites, web meetings and teleconferencing, the process of marketing, finding, analysing and monitoring hedge funds has perhaps never been easier.
The last three years have seen extreme volatility in the global equity markets. Despite this volatility - or perhaps because of it - the offshore hedge fund industry continues to thrive. As investment managers have adjusted their strategies away from the traditional long/short model, they have found a willing pool of investors looking to diversify bruised portfolios with alternative investments.
Institutional portfolios seeking diversification are choosing Long-Only Absolute Return Funds, an actively managed alternative proven to generate real returns independent from any index benchmark.
The following article is written by Mike Roth, a founding partner of Stark Investments, as a response to an article on Convertible Bond Arbitrage appearing in Eurekahedge's October monthly issue. Stark Investments specialises in global multi-strategy arbitrage and is the manager of the Stark Japan Fund.
A growing concern for global markets watchdogs is the accuracy and timeliness of the net asset value (NAV) of hedge funds. The NAV is the ultimate bottom line of a fund, the keystone figure on which performance is based. If the system for setting NAV is not secure, then the fund's worth is suspect.