Key Trends in Global Hedge Funds (April 2021)

The Eurekahedge Hedge Fund Index was up 3.83% year-to-date as of February 2021, outperforming the underlying global equity market as represented by the MSCI ACWI IMI, which was up 2.73% over the same period. 2020 was a very challenging year for global hedge funds as economic and market conditions were particularly dire. Global equities took a huge beating, particularly in March 2020 when the World Health Organisation declared COVID-19 a global pandemic. The MSCI ACWI IMI declined a staggering 13.99% in March 2020, negatively impacting the performance of global hedge funds as they lost 6.35% during the month. Supported by the Federal Reserve’s emergency move in March 2020 to cut benchmark interest rates to zero and restart quantitative easing, the global equity markets managed to stage a strong rebound from the March 2020 bottom, supporting the performance of global hedge funds over the subsequent nine months. Global hedge funds managed to return 22.15% during the April 2020 to December 2020 period, allowing them to recoup all losses suffered in Q1 2020 and end the year on a positive note with a double-digit return of 12.57%. Moving into 2021, global hedge funds have managed to sustain the positive momentum with the Eurekahedge Hedge Fund Index generating two consecutive months of positive returns, returning 1.06% in January and 2.73% in February. The impending implementation of the Biden administration’s proposed US$1.9 trillion economic stimulus package combined with the continued steady rollout of vaccinations globally led to increased investor risk-on sentiment, supporting the performance of the global equity markets and benefitted global hedge funds.

Meanwhile, global longer tenor bond yields began to increase steadily in mid-February 2021 and spiked in the final weeks as concerns around inflation began to emerge. The UK 10 year bond yield and 10-year US treasury note were up 49bp and 34 bp in February respectively, negatively impacting sentiment towards equities and equities sold off in the final week of the month. The DJIA pared gains made in early February, losing 3.2% from the peak of 31,961.86 recorded on 24 February, 2021 and ended the month at 30,932.37. Over in Europe, returns were positive among equity benchmarks in the region with the CAC 40 and Euro Stoxx 50 taking the lead with gains of 5.63% and 4.45% in February 2021 respectively. In addition, the prices of Brent Crude Oil and West Texas Intermediate Crude oil surged strongly by 20.06% and 20.28% respectively as Saudi Arabia volunteered to cut output beyond levels previously negotiated with OPEC, leading to fears that rising inflation could lead to further increases in bond yields and impact global equity markets negatively.

Figure 1: Global hedge fund industry map

The industry’s total assets under management (AUM) increased by US$28.4 billion in the first two months of 2021, driven by performance-based gains of US$17.7 billion and net investor inflows of US$10.8 billion. The global hedge fund industry had seen a staggering US$91.5 billion of net investor outflows in 2020, driven mainly by the US$81.0 billion net investor outflow in March 2020. However, since November 2020, the industry is showing signs of recovery as it recorded four consecutive months of net investor inflows totalling US$25.8 billion during the November 2020 to February 2021 period.

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