Key Trends in Long-Only Absolute Return Funds (July 2020)

The Eurekahedge Long-Only Absolute Return Fund Index was down 11.09% as of May 2020 year-to-date, trailing behind with their hedge funds and funds of funds counterparts who loss 2.62% and 3.05% over the same period respectively. In 2019, absolute return funds recorded a 16.31% return as they benefitted from the robust performance of the global equity market on the back of positive geopolitical development and accommodative central bank policies. Going into 2020, market risk aversion resurfaced at the beginning of the year as the spread of COVID-19 forced government authorities to implement lockdown, which resulted in a substantial shutdown of economic activity. In the US, the unemployment rate in the region spiked to 14.7% in March – a level not seen since the Great Depression. The US equity benchmark witnessed their worst quarterly performance since 1987, with the DJIA plummeting 23.20% in the first quarter of 2020. However, in the second quarter of the year, the global equity market recouped some of the losses they suffered in February and March as most countries began to ease their lockdown restrictions which contributed to the strong rebound of risk assets.

Substantial performance-based growth and investor inflows in 2019 pushed the total assets of the global absolute return fund industry US$22.4 billion higher than the end-2018 figure, which translates to 8.6% year-on-year growth. As of May 2020, the absolute return industry size stood at US$254.8 billion, collectively managed by 809 funds.

Figure 1: Industry growth over the years

Over recent years, the absolute return hedge fund industry weathered through multiple financial and economic storms with the periods prior to the 2008 global financial crisis seeing much optimism in both asset population growths. In 2006, assets under management (AUM) for the industry stood at US$156.0 billion overseen by 344 funds and by the end of 2007, AUM has reached a high of US$190.2 billion, with asset growth attributed to almost equal strength in performance-driven gains and net investor inflows. The industry was hard-hit during the global financial crisis of 2008, with the Eurekahedge Long-Only Absolute Return Fund Index declining 42.30% during the year. Performance-driven losses account for the bulk of asset contraction with losses of US$65.1 billion. Steep investor redemptions of US$18.6 billion were also recorded over the year.

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