Key Trends in European Hedge Funds (December 2020)

The Eurekahedge European Hedge Fund Index was down 2.31% as of October 2020 year-to-date, outperforming the MSCI AC Europe IMI, which lost 17.41% over the same period. In the first 10 months of 2020, the European equity markets plunged across the board as the COVID-19 pandemic worsened, forcing many European governments to implement stringent social distancing and lockdown measures which had a negative impact on economic activity, resulting in the weak performance of the region’s equity market particularly in February and March. The CAC 40 and DAX recorded 18.0% and 16.4% of losses in March alone. In terms of year-to-date, the FTSE 100 was the worst performer among its European peers, declining 26.1% during the first 10 months of 2020 as the negotiation around the Brexit transition also posed challenges in the UK. In the same vein, the CAC 40 and the DAX are down 23.2% and 12.8% over the same period.

The European hedge fund industry AUM stood at US$441.2 billion as of October 2020, down US$29.0 billion from the end of 2019 figure, attributed to both investor redemptions and performance-based decline as a result of the risk-off sentiment caused by the global COVID-19 pandemic. European hedge fund managers had recorded investor outflows of US$53.8 billion in 2019, despite the strong performance-based growth of US$24.1 billion due to the improving economic outlook and positive development of international trade. The onset of the COVID-19 pandemic dampened investors’ confidence further, causing a staggering US$25.2 billion of net investor outflows in Q1 2020. From April to October 2020, the European hedge fund industry recorded net investor inflows of US$4.3 billion, supported by the rebound of global equity markets from their March 2020 bottom. Closures in the European hedge fund industry outnumbered launches in 2020 by a much larger margin relative to 2019 figures. As of October 2020, the European hedge fund industry population stood at 3,523 hedge funds, down from 3,679 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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