Research

Asset Flows Update

The Eurekahedge Hedge Fund Index was down 1.31% in December1 , outperforming the MSCI AC World Index2 which declined 7.61% in what turned out to be the worst month of 2018 for global equity markets. Concerns over the Fed’s stance which turned out to be less Dovish than what investors expected triggered major equity sell-offs around the globe, and sent major equity indices plummeting during the month. The US equity markets suffered the worst blows during the volatile month, with the S&P 500 and the Dow slumping 9.18% and 8.66% respectively, recording their worst month of 2018, and in the latter’s case, the worst December since the Great Depression. Asian equities continued their slump in December, despite Trump and Xi’s agreement to postpone the next wave of tariff increases, which opened a path for further negotiations down the road. On the other hand, uncertainties surrounding Brexit deals continued to plague European equities, and outweighed the positive impact of the Italian government’s success in securing a deal with the EU over its budgetary plan. In contrast to the US Federal Reserve’s decision to raise rates, the European Central Bank held their rates and confirmed the end of their asset purchasing programme.

Final asset flow figures for November 2018 revealed that hedge fund managers suffered performance-based losses of US$10.1 billion and investor redemptions of US$12.1 billion. Preliminary data for December shows that the industry saw US$11.3 billion of performance-driven losses as well as US$12.2 billion of net outflows. The assets under management (AUM) of the global hedge fund industry stood at US$2,336.2 billion as of December 2018, down roughly 4.5% throughout the year, placing 2018 as the worst year for the global hedge fund industry since the global financial crisis.

As data coverage improves towards the end of the month, we expect the December performance-based losses figure to grow and reach comparable levels to what the global hedge fund industry saw back in February and October 2018.

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

Key highlights for December 2018:

  • The Eurekahedge Hedge Fund Index was down 3.85% in 2018, outperforming the MSCI AC World Index (Local) which declined 10.18% over the year. Throughout the year, the global hedge fund industry saw performance-based losses and net investor outflows totalling US$58.9 billion and US$51.6 billion respectively, in contrast to how the industry assets grew US$221.9 billion over the preceding year.
  • 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 4.09% in February alone. Throughout the year, the mandate had lost 14.9% of its total AUM since the end of 2017.
  • Preliminary data showed that the long/short equities mandate suffered US$18.0 billion of performance-based losses and US$3.5 billion of investor redemptions in December. Investors have redeemed US$18.3 billion from equity hedged strategies over the past year as they ended 2018 as the worst performing strategy - down 6.27% for the year.
  • 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 months of 2018 in the red, and recorded its worst yearly return (-4.42%) 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 among regional mandates in 2017, were down 14.24% and 7.37% respectively throughout 2018.
  • Fund managers utilising AI/machine learning strategies were up 1.52% in November and 1.43% in December, ending their streak of losses which resulted in the first negative annual return recorded by the Eurekahedge AI Hedge Fund Index. The index was down 3.68% over 2018.
  • The Eurekahedge ILS Advisers Index was down 2.93% throughout 2018, marking it as the second worst year behind 2017, during which the index slumped 5.60%. As the catastrophic losses incurred by Hurricane Florence and Hurricane Michael came to light, the US$100.7 billion ILS hedge fund industry were adversely affected.
  • The Eurekahedge Crypto-Currency Hedge Fund Index was down 6.04% in December, as Bitcoin price nearly touched the US$3,000 level in the middle of the month. The index has wiped 70.27% of its value throughout 2018. In comparison, the index soared 1,708.50% in 2017, supported by the rally in crypto-currency prices during the year.

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Footnote
1 Based on 40.89% of funds which have reported December 2018 returns as at 11 January 2019.
2 MSCI AC World Index (Local)
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