Research

2017 Key Trends in European Hedge Funds

Introduction

The Eurekahedge European Hedge Fund Index gained 6.91% in 2017 year-to-date, slightly behind their global peers’ performance as indicated by the Eurekahedge Hedge Fund Index which gained 6.93% over the same period. Hedge fund managers have been able to capture a portion of the underlying market’s rally as European economies recover over the year. Strengthening oil and commodity prices, combined with the unwinding of geopolitical risks will continue to support the region’s growth in 2018. The hedge fund industry is expected to benefit from the strong market performance of the region over the next year.

The European Central Bank (ECB) has decided to continue the quantitative easing policy throughout the first three quarters of 2018, albeit at a lower rate. Mario Draghi stated that there won’t be a sudden end to the bond buying, indicating that the ECB is likely trying to avoid a situation similar to the 2013 US taper tantrum in which investors panicked in reaction to the Fed’s announcement that they would no longer be purchasing bonds.

MiFID II will kick in at the beginning of 2018, putting pressure on hedge fund managers who will have to adjust their budgets to ensure compliance with the new regulations. This would adversely affect smaller fund managers who would likely have to limit their research spending or pass on the research cost to their clients, who may not be very receptive of the idea, considering the already strong pressure on the hedge fund fee structure in general. On top of that, MiFID II also comes with stricter data reporting regulations, requiring equity and fixed income instrument trades to be reported within minutes.

The European hedge fund industry grew by almost US$36 billion over the year, almost two thirds of which were contributed by investor inflows, signifying a recovery of confidence in the industry following the massive withdrawals totalling US$27 billion in the previous year. The hedge fund population shrunk to 3858 as of October 2017, continuing the trend of decline that started in 2014. Considering the numerous challenges faced by hedge fund managers, including MiFID II and increasing competition against various investment vehicles with lower costs, it comes as no surprise that the attrition rate within the industry continues unabated.

Figure 1: Industry growth since 2000

  Latin American hedge fund industry map

The full article is available in The Eurekahedge Report accessible to paying subscribers only.

Subscribers may continue to login as usual to download the full report and non-subscribers may email database@eurekahedge.com to enquire on how to obtain the full research report.

Chat