Asset Flows Update

The Eurekahedge Hedge Fund Index was down 4.77%1 in March, outperforming the underlying equity market as represented by the MSCI ACWI IMI (Local), which lost 13.99% over the month. Global equities ended the month with double-digit losses, despite the partial recovery toward the end of the month, driven by fiscal and monetary stimulus packages. The situation surrounding the COVID-19 outbreak continued to worsen around the globe, with the United States overtaking China and Italy as the country with the highest number of confirmed cases. US authorities were forced to implement lockdown in most states adversely affected by the coronavirus outbreak, with New York being the hardest hit. Businesses that were deemed non-essential were forced to temporarily cease their operations, resulting in an increase in unemployment rate and slowing economic growth. In response, the US administration introduced a US$2 trillion economic stimulus package, the biggest fiscal stimulus in American history, on top of the Federal Reserve’s emergency policy rate cut. The synchronised moves by the central bank and government authorities were aimed to support the economy from the negative impact of the pandemic and to increase market liquidity. The US equity benchmarks recorded their second consecutive month of weak performance, which resulted in their worst quarterly performance since 1987. The DJIA and the S&P 500 were down 13.74% and 12.51% respectively throughout the month of March. In the same vein, European equities underperformed their global peers as the worsening COVID-19 outbreak situation in the continent turned it into the new epicentre of the pandemic. The CAC 40 and DAX plunged 18.018 and 16.44% respectively over the month. Over in Asia, Mainland China is on track to ease its months-long lockdown, as the number of new cases began to taper. The Mainland Chinese equities outperformed other equity benchmarks within the region – the Shenzhen and Shanghai Composite indices were down 7.37% and 5.77% respectively in March.

Final asset flow figures for February showed that hedge fund managers recorded performance-based losses totalling US$42.0 billion, on top of net investor redemptions of US$1.5 billion throughout the month. Preliminary data for March estimated that the global hedge fund industry witnessed US$94.0 billion of performance-driven losses, and US$42.2 billion of net investor outflows. The assets under management (AUM) of the global hedge fund industry stood at US$2,122.9 billion as of end-March 2020. On an annual basis, the industry had seen US$132.6 billion of performance decline and US$47.1 billion of investor redemptions over the first three months of 2020.

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

Key highlights for March 2020:

  • The Eurekahedge Hedge Fund Index registered its strongest outperformance relative to underlying markets since October 2008, outperforming the MSCI AC World Index by 9.22% in March.
  • The asset-weighted Mizuho-Eurekahedge Emerging Index – USD ended March down 19.03%, recording its worst month since the inception of the index. Fund managers focusing on Asia ex-Japan and Latin America have witnessed a total of US$6.7 billion net investor redemptions year-to-date.
  • The Eurekahedge UCITS Hedge Fund Index was down 8.51% in March, underperforming non-UCITS hedge funds which were down 3.92% on average during the month. The US$209.4 billion UCITS hedge fund industry has seen US$14.6 billion of performance-driven losses and US$10.1 billion of net investor outflows over the first quarter of 2020.
  • The Eurekahedge Fixed Income Hedge Fund Index was down 8.49% in March as the increase in default rates and lower credit ratings resulted in the weak performance of high yield bonds. The strategic mandate witnessed US$5.0 billion of performance decline and US$3.5 billion of net outflows throughout March.
  • Preliminary data showed that hedge fund managers focusing on structured credit were down 24.50% in March as fund managers suffer substantial losses from illiquid bond holdings and investor redemption pressure. The Eurekahedge Structured Credit Hedge Fund Index has plummeted 25.32% year-to-date, recording its worst quarter since inception.
  • The Eurekahedge Billion Dollar Hedge Fund Index was down 4.99% in March, bringing its year-to-date loss to 5.93%. Hedge funds overseeing in excess of US$1 billion in assets have come under redemption pressure in recent months, with US$31.8 billion of net outflows recorded through Q1 2020.
  • Hedge fund managers utilising equity long bias, event driven and distressed debt strategies were down 18.68%, 13.50%, and 11.04% respectively as of March 2020 year-to-date, ending the first quarter of the year at the bottom of the performance table. Equity market sell-offs, weak M&A activities and strained corporate debt market weighed heavily on the performance of these strategies in recent months.

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1 Based on 44.32% of funds which have reported March 2020 returns as at 14 April 2020