Asset Flows Update

The Eurekahedge Hedge Fund Index was up 3.30%1 in December 2020, supported by the strong performance of the global equity market as represented by MSCI ACWI2 which gained 4.04% during the month. In 2020, global hedge funds ended the year in double-digit performance with 11.68% return, recording their best annual performance in over a decade, despite the ongoing pandemic. In the earlier months of 2020, the COVID-19 outbreak forced non-essential businesses to temporarily cease their operations. This in turn caused a shutdown of broader economic activity resulting in the sharp increase in unemployment rate. Unemployment rate reached 14.8% in April 2020 in the US – a level that has not been seen since the Great Depression. However, risk assets made a strong comeback since end-March, supported by the massive economic stimulus, low-interest rates, reopening of the major economies, and positive development of COVID-19 vaccines which boosted the performance of the global equity market.

Over the month of December, global hedge funds benefitted from the strong rally of risk assets driven by the deployment of several COVID-19 vaccines and the passage of the new COVID-19 relief bill in the US, which was the second-largest economic stimulus in American history. In the US, NASDAQ Composite was up 5.65% in December, bringing its 2020 return to 43.64% compared to 19.30% of S&P 500. The tech-companies particularly the FAANG group strongly benefitted from the ongoing pandemic as seen from the 80.75% return of AAPL throughout the year. In the same vein, the post-Brexit trade agreement between the UK and EU boosted the performance of the equity market in the region, with the DAX gaining 3.22% during the month, while the FTSE100 returned 3.10% over the same period respectively. Returns were positive across geographic mandates in December with North American hedge funds gaining 3.99%, outperforming their Asia ex-Japan and European peers who returned 3.26% and 2.39% respectively. Across strategies, CTA/managed futures, long/short equities, and event-driven fund managers were up 4.24%, 4.17%, and 3.66% respectively throughout the month.

Final asset flow figures for November showed that hedge fund managers recorded performance-based gains totalling US$48.9 billion and net investor allocations of US$14.8 billion throughout the month. Preliminary data for December estimates that the global hedge fund industry witnessed US$34.4 billion of performance-driven gains combined with US$8.2 billion of net investor outflows. The assets under management (AUM) of the global hedge fund industry stood at US$2,237.8 billion as of end-2020. The global hedge funds industry has seen US$18.7 billion of performance-based gains and US$83.5 billion of investor redemptions throughout 2020.

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

Key highlights for December 2020:

  • Hedge fund managers were up 3.30% in December and returned 11.68% in 2020 – recording their best annual performance in over a decade. In comparison, the underlying global equity market as represented by the MSCI ACWI gained 12.32% in 2020, despite its 21.44% decline in the first quarter. Around 35% of global hedge funds have outperformed the MSCI ACWI during the year with 18% of them delivering an annual return in excess of 20%.
  • Billion dollar hedge fund managers lagged their smaller peers returning 5.47% in 2020, seeing performance based losses of US$17.8 billion whilst seeing net capital outflows of US$48.9 billion. Performance varied among the billion dollar group with the Top 10% of billion dollar club managers seeing annual average returns of 19.50% whilst the Bottom 10% saw decline of 10.67%.
  • Assets under management for the global hedge funds declined by US$64.8 billion throughout the year, driven by US$83.5 billion of net investor redemptions, partially offset by US$18.7 billion of performance-based growth. In Q1 2020, the industry recorded US$178.2 billion of performance-based decline, which was the sharpest quarterly AUM decreased in history, while net investor redemptions stood at US$85.9 billion over the same period.
  • Global hedge funds recorded 777 closures in 2020 down from 852 liquidations in 2019, despite the tough trading conditions in the earlier months of the year. The global hedge fund industry logged 318 closures in Q1 2020 compared to 438 in Q4 2008. On the other hand, the industry witnessed 502 launches over the year, which was the lowest level since 2000.
  • The Eurekahedge Greater China Hedge Fund Index was up 3.67% in December, bringing its 2020 return to 32.54% which marks its best annual performance since 2009. In the same vein, Greater China mandate also reached a new milestone as their total AUM reached US$88.0 billion from US$67.8 billion since end-2019. This has come from both performance-based growth and investor allocations of US$12.4 billion and US$7.8 billion respectively, which were the strongest annual numbers being recorded.
  • The Eurekahedge Long Short Equities Hedge Fund Index was up 4.08% in December, bringing its accumulative return since end-March to 31.86%. Fund managers’ performance was supported by the strong rally of the global equity market driven by the accommodative economic policies and encouraging progress of vaccine development. On a year-to-date basis, long/short equities hedge funds registered their best annual performance since 2009 as they returned 17.01%, with nearly half of their constituents have outperformed the global equity market in 2020.
  • Emerging markets focused hedge funds posted gains of 16.55% in 2020, seeing a remarkable recovery from their Q1 lows to bounce back with returns of 29.72% over the final nine months of the year. The Top 10% of EM focused managers have posted annual average gains of 40.14% in 2020, outperforming the MSCI EM Index (USD) by 24.22%.
  • The Eurekahedge Structured Credit Hedge Fund Index was up 3.48% during the month, extending its nine-month trailing return to 24.57% since end-March. In terms of year-to-date return, structured credit hedge funds were down 2.95% as of December 2020, underperforming their fixed income and distressed debt peers who returned 5.38% and 4.02% respectively.
  • Fund managers focusing on cryptocurrencies were up 21.81% in December as tracked by Eurekahedge Crypto-Currency Hedge Fund Index, supported by the robust performance of Bitcoin which was up 58.82% and trading at the US$28,000 level – soaring above its 2017 peak. Looking at year-to-date return, cryptocurrency hedge funds are up 185.75%, compared to the 296.74% return of Bitcoin in 2020.

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1Based on 47.41% of funds which have reported December 2020 returns as at 14 January 2021