Key Trends in Global Hedge Funds (March 2020)


The Eurekahedge Hedge Fund Index was up 0.08% year-to-date as of January 2020, outperforming the underlying global equity market as represented by the MSCI ACWI IMI, which was down 0.89% over the same period. In 2019, the positive development of the US-China trade negotiations and the Fed’s shift of stance on their policy rates were the primary drivers of the global equity market performance. After the breakdown of the trade talks in August, which resulted in the sharp decline of risk assets during the month, the two leading economies finally agreed on a phase-one deal in October, easing their 18-month long trade tension. The said deal was officially signed in January 2020. Throughout 2019, the Federal Reserve announced three 25 bps rate cuts to support the US economy from the risks associated with slowing global growth and trade uncertainties. The tech-heavy NASDAQ recorded a 35.23% gain in 2019 – followed by the 28.88% gain of the S&P 500 over the same period. Fund managers around the globe registered 8.65% return in 2019 – their strongest annual performance since 2013. Going into 2020, the outbreak of COVID-19 in China raised concerns among investors over the potential adverse effect on the global economic outlook, resulting in several sell-offs in the equity market over the first few months of the year.

The yields of the US 10-year bond dipped lower in 2019, despite the persistent risk-on sentiment throughout the year. The dovish stance of the Federal Reserve pushed the yields of US treasuries lower, resulting in the spread between the yields of the US 2-year and 10-year bonds to invert in August 2019 for the first time since 2007. Similarly, the yields of the German 10-year bond hit an all-time low in September 2019, as the German economy slowed down in Q2 2019, pushing the ECB to cut its deposit rates and restart their asset purchase programmes.

Figure 1: Global hedge fund industry map

The industry’s total assets under management (AUM) increased by US$10.3 billion in 2019, driven by performance-based gains counterbalanced with substantial investor redemptions. Interest level among hedge fund investors has been weak, as the industry recorded seven consecutive quarters of net outflows from the Q2 2018 up to Q4 2019, totalling US$260.6 billion, despite the performance-based gains of US$82.7 billion recorded over the same period.

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