Key Trends in European Hedge Funds (April 2020)

The Eurekahedge European Hedge Fund Index was down 2.48% as of February 2020 year-to-date, outperforming the MSCI AC Europe IMI, which lost 9.79% over the same period. In the fourth quarter of 2019, the European equity markets rose higher, supported by the positive geopolitical development surrounding the US-China trade negotiations as the two leading economies reached the phase-one deal, which was signed in January 2020. The DAX and CAC 40 gained 6.61% and 5.29% in Q4 2019, reaching new all-time highs. However, market risk sentiment shifted quickly in February 2020 as the extent of the COVID-19 outbreak outside China resulted in concerns over the global economic growth. The number of newly infected people in the European region accelerated quickly, particularly in Italy, which became the epicentre of the virus outbreak in the region. The worsening situation of the COVID-19 outbreak in European countries forced government authorities to implement stringent social distancing measures, which precipitated in slowing economic growth and an increase in unemployment. The FTSE 100 plunged 9.68% in February, underperforming its European peers as the negotiation around the Brexit transition also posed challenges in the UK. In the same vein, the CAC 40 and the DAX plummeted 8.55% and 8.41% over the same month.

The European hedge fund industry assets under management (AUM) stood at US$461.4 billion as of February 2020, down US$8.8 billion from the end of 2019 figure, attributed to both investor redemptions and performance-based decline, following the trend from last year. European hedge fund managers have recorded investor outflows of US$58.8 billion last year, despite the improving economic outlook supported by the positive development of international trade, which resulted in strong performance-based growth of US$24.1 billion. On the other hand, fund population growth within the region was flat since the end of 2019, with launches and closures of similar magnitude recorded year-to-date. As of February 2020, the European hedge fund industry population stood at 3,675 hedge funds, down from 3,676 by the end of 2019.

Figure 1: 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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