Research

2017 Overview: Key Trends in Global Hedge Funds

Introduction

The Eurekahedge European 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.

Despite the strong investor inflows recorded, launch activities remain muted with 489 hedge funds launching over the year, continuing the trend of decline in launches the industry has been seeing since 2014. The implementation of MiFID II in January 2018 may put stronger pressure on hedge fund launch activities as the increased compliance cost and the stricter reporting requirements on traded instruments may act as barriers of entry against small funds.

Among geographic mandates, Asia ex-Japan focused funds topped the charts with 19.19% year-to-date returns, magnificently recovering from their poor performance of -0.38% last year, owing to equity market rallies across Asian countries, especially China and India. Latin American hedge funds generated 12.27%, down from the 18.07% they yielded last year, but still enough to earn them the second place among geographic mandates. Overall the emerging markets have continued to outperform the developed markets, supported by the strengthening commodity prices and the recovery of oil prices over the latter half of 2017. North American focused hedge fund managers posted 5.69% gain, capturing a small portion of the strong US equity market rally as indicated by the S&P 500 index’s 18.26% gain as of November 2017 year-to-date.

Among strategic mandates, long/short equity hedge funds unsurprisingly yielded the best performance among all the major strategies with their 11.14% year-to-date returns, by virtue of the global equity market performance. Multi-strategy and event driven funds followed with 9.14% and 8.12% returns over the same period respectively. The year 2017 also saw interesting developments on hedge funds employing alternative strategies, with insurance-linked securities (ILS) hedge funds posting their first steep losses in the last six years due to the catastrophic damage caused by the consecutive hurricanes in September, and crypto-currency hedge funds generating nearly 900% year-to-date returns propelled by the gravity defying rallies in crypto-currencies.

Figure 1: Industry growth since 2000

  global hedge fund industry map

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