Asset Flows Update

The Eurekahedge Hedge Fund Index was down 1.73%1 in February, outperforming the underlying equity market as represented by MSCI ACWI (Local) which plummeted 7.84% over the same period. Global equities started the month on a positive note, driven by the market optimism towards the containment of the COVID-19 as the number of newly infected people in Mainland China decelerated and central banks announced stimulus packages. The three major stock indices in the US recorded new all-time highs during the month, as the encouraging macroeconomic data in the region also contributed to the risk-on sentiment. However, during the second half of the month, market risk sentiment completely shifted as concerns surrounding the extent of the COVID-19 outbreak outside Mainland China, particularly in South Korea and Italy resulted in massive sell-offs of global equities. For the week ending February 28, US equity benchmarks recorded their worst week since the 2008 global financial crisis, with the DJIA and S&P 500 losing 12.36% and 11.49% respectively. In the same vein, European equities ended the month of February in red, with the CAC 40 and DAX down 8.55% and 8.41% respectively, despite the dovish stance exhibited by the ECB and fiscal stimulus announced by the German government. On the other hand, Asian equities outperformed their global peers, despite being the initial epicentre of the coronavirus outbreak as the number of newly infected people in Mainland China decelerated. The Shenzhen Composite Index gained 2.56% during the month, and the Hang Seng Index recorded a small loss of 0.69% in February. Returns were mixed across regions in January, with Asia ex-Japan fund managers returning 0.70%, outperforming their North American peers, who ended the month down 2.16%.

Final asset flow figures for January showed that hedge fund managers recorded performance-based gains totalling US$3.4 billion, offset by net investor redemptions of the same magnitude throughout the month. Preliminary data for February estimated that the global hedge fund industry witnessed US$33.8 billion of performance-driven losses, and US$1.7 billion of net investor inflows. The assets under management (AUM) of the global hedge fund industry stood at US$2,270.6 billion as of end-February 2020. On an annual basis, the industry had seen US$30.4 billion of performance-decline and US$1.7 billion of investor redemptions over the first two months of 2020.

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

Key highlights for February 2020:

  • The Eurekahedge Hedge Fund Index registered its strongest outperformance relative to underlying markets since February 2009, outperforming the MSCI AC World Index by 6.11% in February. Long volatility and tail risk hedge funds led the performance tables in February and have outshined most other strategies as market volatility level remained elevated during the month.
  • The global hedge fund industry AUM had increased by US$10.3 billion in 2019. Investor redemptions totalling US$127.5 billion have been recorded throughout the year, a level the industry has not seen after the global financial crisis. Going into 2020, net investor outflows of US$1.7 billion and a performance based decline of US$30.4 billion have been recorded as of February 2020 year-to-date.
  • The Eurekahedge Greater China Long Short Equities Hedge Fund Index was up 1.70% in February, outperforming the Hang Seng Index by 2.39% and the CSI 300 Index by 3.29%. Optimism over the improving COVID-19 situation in Mainland China and the accommodative policies of the PBOC have provided some support for the region’s equity market. On a year-to-date basis, the US$30.3 billion Greater China mandate was up 1.03%.
  • The Eurekahedge Fixed Income Hedge Fund Index was down 0.77% in February, in spite of the risk-off sentiment in the market, which boosted global government bonds throughout the month. The Fed and the ECB have signalled potential policy supports to counter the economic slowdown caused by the COVID-19 outbreak, resulting in lower bond yields during the month.
  • Fund managers utilising AI/machine learning strategies lost 0.59% in February, breaking their streak of five consecutive positive months since September last year. On a year-to-date basis, the Eurekahedge AI Hedge Fund Index is still up 0.24%.
  • The Eurekahedge Crypto-Currency Hedge Fund Index was up 22.29% in January, supported by the strong performance of Bitcoin which ended the month up 31.63%. Fund managers focusing on crypto-currencies gained 16.41% throughout 2019.

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1 Based on 44.99% of funds which have reported February 2020 returns as at 12 March 2020