Research

2018 Key Trends in European Hedge Funds

Introduction

The Eurekahedge European Hedge Fund Index gained 0.56% in the first half of 2018, ahead of their global peers’ performance as indicated by the Eurekahedge Hedge Fund Index which was up 0.39% over the same period. European hedge funds returned 7.10% in 2017 on the back of the underlying equity markets’ rally throughout the year, supported by strengthening oil and commodity prices, combined with the unwinding of geopolitical risks within the region. Going into 2018, market volatilities returned and weighed down on the alternative investment industry’s performance. Regional risk outlook seemed to be tilted downward as trade concerns over the steel and aluminium tariffs imposed by the Trump administration and the uncertainties looming over Brexit deals may pose as headwinds against the European economies for the upcoming months.

The European hedge fund industry AUM stood at US$558.9 billion as of May 2018, up US$3.1 billion from the end of 2017 figure, driven by strong investor inflows within the first quarter of the year. Strong investor allocations totalling US$31.7 billion in 2017 signified a recovery of confidence in the industry following the massive redemptions totalling US$27.0 billion in the preceding year. On the other hand, fund population within the region is on track to contract for the fourth consecutive year, as hedge fund managers face numerous challenges from increasingly strict and expensive regulatory compliance to competition from other alternative investment vehicles. As of May 2018, the European hedge fund industry population stood at 3768 hedge funds, down from 3788 by the end of 2017.

Figure 1: Industry growth in recent years
 European hedge fund 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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