Research

2015 Overview: Key Trends in European Hedge Funds

Introduction

The European hedge fund industry has been gaining ground despite the challenging circumstances in the Eurozone region. Given the strong recovery posted by European hedge funds, March 2014 saw the industry’s assets under management (AUM) breach past its October 2007 pre-crisis AUM of US$478.1 billion. The situation in Greece earlier this year has not deterred AUM growth in the region with total assets climbing steadily to reach US$525.9 billion as at October 2015, managed by a total of 3,998 hedge funds. On a year-to-date basis, the total AUM of European hedge funds has grown by US$39.1 billion, largely on the back of strong investor flows which have account for the bulk of this growth.

In 2000, the European hedge fund industry had 470 funds managing a total of US$38.6 billion in AUM. Over the course of the next seven years, the industry saw tremendous growth with AUM peaking at US$472.8 billion by October 2007. The onset of the global financial crisis, which was followed by the sovereign debt crisis in the Eurozone periphery, dealt a serious blow to the industry with managers seeing large redemptions and heavy performance based losses — the Eurekahedge European Hedge Fund Index was down 17.07% in 2008 with AUM declining by 37.9% from their 2007 peak to bottom out at US$293.6 billion by March 2009. Despite regional economic and political turmoil in the Eurozone, the industry has shown increased resilience, with AUM increasing by almost 80% from its 2009 lows to end at US$525.9 billion by October 2015.

Figure 1a: Industry growth over the years
 

By the end of 2011, the AUM of the European hedge fund industry declined to a US$359.8 billion low, following a resurgence of debt woes in member EU sovereigns as the crisis intensified amid fears over Greece exiting the euro. Throughout 2012, industry assets stayed at their lows as crisis continued to put a damper on investor confidence.

The European Central Bank’s stance to keep interest rates low and support the Eurozone’s recovery has restored market confidence to some extent. Following signs of economic recovery in the region, European hedge funds have enjoyed a period of sustained growth starting in 2013 that has expanded their total asset base to US$496.2 billion high in June 2014. Despite seeing redemptions from July 2014 to December 2014, the European hedge fund industry AUM grew by US$ 32.3 billion in 2014.

 

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