Asset Flows Update

The Eurekahedge Hedge Fund Index was down 0.14% in November1 while underlying markets as represented by the MSCI World Index2 edged 1.11% higher during the month as equity markets recovered from the decline in October. Dovish tone from the Fed chair raised expectations of a more gradual rate hike pace, providing a tailwind for equity markets around the globe. Positive anticipation over a potential truce between Trump and Xi during the G20 summit has also helped improve market sentiment throughout the latter half of the month. Over in Europe, equity markets continued their slump as uncertainties surrounding Brexit negotiations and Italy’s budget plan continued to plague the markets. Across strategies, distressed debt hedge funds were the worst performer in November as they lost 1.99% owing to the weak high yield market during the month.

Final asset flow figures for October 2018 revealed that managers reported performance-based losses of US$42.5 billion while recording net investor redemptions of US$28.6 billion. Preliminary data for November shows that managers have posted performance-based losses of US$5.2 billion while recording net asset outflows of US$12.0 billion. The assets under management (AUM) of the global hedge fund industry stood at US$2,364.7 billion as of November 2018, down roughly 3.4% year-to-date, placing 2018 as the worst year for the global hedge fund industry since the global financial crisis.

The performance-based losses recorded in October was roughly in line with the US$44.2 billion performance decline hedge fund managers suffered back in February this year, during which a spike in market volatility resulted in a difficult trading situation and significant selloff globally.

Figure 1a: Summary monthly asset flow data since January 2013

Key highlights for November 2018:

  • The Eurekahedge Hedge Fund Index declined 2.36% as of November 2018 year-to-date, in contrast to the 8.45% gain made in 2017, which turned out to be the best year for hedge funds and equity markets since 2013.
  • The first quarter of 2018 saw the return of market volatility, which pushed nearly every major strategic mandate down into the red in February. CTA/managed futures hedge funds suffered the heftiest losses, with the Eurekahedge CTA/Managed Futures Hedge Fund Index down 4.12% in February alone. The mandate saw performance-based losses totalling US$22.6 billion during the month.
  • Long/short equities mandate bore the brunt of the equity market selloff in October, with the Eurekahedge Long Short Equities Hedge Fund Index ending the month down 3.63%, dragging its year-to-date return into the red for the first time in 2018. Roughly 80% of the funds constituting the mandate posted losses during the month, resulting in performance-based losses of US$29.1 billion which was the steepest decline since 2008 global financial crisis, as well as investor redemptions totalling US$13.2 billion at the same time.
  • European hedge fund managers have been struggling under the uncertainties surrounding Brexit negotiations and Italy’s budget concerns throughout most of 2018. The Eurekahedge European Hedge Fund Index spent eight out of the first 11 months of 2018 in the red, and is on track to post its worst yearly return since the peak of the Eurozone crisis in 2011.
  • Hedge fund managers focusing on Asia Pacific have been suffering from the US-China tariff spat and the Fed’s rate hikes, which sent Asian equity markets and currencies plummeting. Greater China and India mandates, the two best performers in 2017, ended up at the bottom of the table this year as they posted losses of 11.47% and 6.83% respectively.
  • Fund managers utilising AI/machine learning strategies were up 1.25% in November, ending their streak of losses which placed them on track to record their worst year since the inception of the Eurekahedge AI Hedge Fund Index. On a year-to-date basis, the index is still down 5.27%.
  • The Eurekahedge ILS Advisers Index declined 2.84% throughout the month of November, dragging its year-to-date loss to 2.13%. As the catastrophic losses incurred by Hurricane Florence and Hurricane Michael came to light, ILS funds with exposure towards the region were adversely affected.
  • The Eurekahedge Crypto-Currency Hedge Fund Index was down 64.90% year-to-date, largely in line with how Bitcoin price has plummeted past the US$4,000 level throughout the year. Crypto-currency hedge fund managers returned 1708.50% last year, owing to the gravity-defying coin prices throughout 2017.

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1 Based on 48.30% of funds which have reported November 2018 returns as at 13 December 2018.
2 MSCI AC World Index (Local)