Asset Flows Update

The Eurekahedge Hedge Fund Index was up 0.95%1 in March 2021, supported by the robust performance of the global equity market as represented by the MSCI ACWI (Local) which gained 3.24% over the same period. The Federal Reserve reaffirmed their commitment to keep monetary policy accommodative for at least another two years and allow inflation to rise above 2% before considering any rate hikes. This led to increased inflation expectations among investors and continued selling pressure on long-dated US treasures. The yield of the 10-year treasury note rose by 34bp to end the month at 1.744%, more than doubling the 0.842% yield at the end of November 2020. The equity market in the United States continued to record strong returns in March 2021, with the DJIA gaining 6.62% and the S&P 500 gaining 4.24%. Equities were supported by the US$1.9 trillion economic stimulus package rolled out by the Biden administration as well as the continued speedy rollout of vaccinations. In addition, US President Joe Biden is proposing a US$2 trillion plan to overhaul and upgrade the nation’s infrastructure in a bid to create jobs in the short run and strengthen American competitiveness in the long run. The plan would also hasten the shift to new, cleaner energy sources and accelerate the fight against climate change. However, Republicans are against his plan to raise corporate taxes to 28 percent from 21 percent to fund the infrastructure plan, as they are concerned that doing so would hurt business competitiveness and add trillions more to the national debt. Nevertheless, US President Joe Biden defended his plans, justifying his proposal by arguing that the proposed tax increases would only affect the very wealthy and that the plan is expected to deliver concrete improvements to the standard of living for Americans. Over in Europe, returns were positive among equity benchmarks in the region with the DAX Index and the Euro Stoxx 50 taking the lead with gains of 8.86% and 7.78% respectively. Returns were mostly positive across geographic mandates in March with North American and European hedge funds gaining 1.56% and 1.37% respectively while Asia ex-Japan hedge funds were down 0.90%. Across strategies, event driven and long/short equities outperformed their strategic peers with returns of 1.59% and 1.26% respectively throughout the month.

Key highlights for March 2021:

  • Hedge fund managers were up 0.95% in March – supported by the strong performance of the global equity market as represented by the MSCI ACWI (Local) which gained 3.24% during the month. In terms of year-to-date return, global hedge funds had their best start of the year as they returned 4.79%, which was their strongest first quarter performance since 2006. In the same vein, around 75% of the global hedge funds tracked by the Eurekahedge database generated a positive return in 2021.
  • The Eurekahedge Long Short Equities Hedge Fund Index was up 1.26% in March, supported by the strong performance of the equity market, particularly in Europe and the US, with the DAX and S&P 500 gaining 8.86% and 4.24% during the month respectively. In terms of year-to-date performance, long/short equities managers were up 6.49% - marking their best start of the year since 2006, a huge improvement compared to the previous year when they were down by 11.57% in the first three months of 2020.
  • North American hedge funds continued to outperform their peers as they recorded their back-to-back best quarterly performances during the month. The mandate gained 1.56% in March, bringing their Q1 2021 return to 6.77% - marking their best first quarter performance since 2000. In the same vein, driven by the strong rally of the global equity market, the Eurekahedge North American Hedge Fund Index posted 10.85% return in Q4 2020, which was their best quarterly performance since the inception of the index.
  • The Custom High Yield Debt Hedge Fund Index was up 1.13% over the first two months of 2021, outperforming the US High Yield Master II Index which returned 0.73% over the same period. The high yield debt managers benefitted from the recovery of distressed debt of affected companies during the COVID-19 crisis, as seen from the 23.9% return of the US High Yield Master II Index for the 11 months since end-March 2020. In the same period, the mandate recorded an accumulated return of 17.01% - their strongest 11-month performance since 2010.
  • The population share of hedge funds managing in excess of one billion dollars has grown rapidly. In 2011, only 3.4% of the total hedge fund population had an AUM of at least one billion dollars. The figure has since grown to 8.3% in 2021, more than doubling its population share in just a decade.
  • The average performance fees of global hedge funds had been on a downtrend since 2007, until a recent increase in the average performance fees of newly launched funds in 2020 and 2021 broke the declining pattern. In 2020 and 2021, the average performance fees of new hedge fund start-ups were 15.10% and 15.72% respectively, up from 13.74% in 2019. The Eurekahedge database had captured some newly launched hedge funds with an unconventional fee structure of offering zero management fees and higher performance fees. On the other hand, average management fees continued to decline, exacerbated by the new fee model adopted by new players in the hedge fund industry.
  • Structured credit hedge funds were up 0.42% in March, bringing their year-to-date return to 3.24% and outperforming their fixed income peers who returned 1.87% over the first quarter of 2021. On the other hand, as shown in our strategy profile, structured credit hedge funds generated the best annualised return of 9.92% since end-2009, outperforming their other credit-focused peers which are distressed debt, trade finance, fixed income and ILS funds who generated an annualised return of 7.98%, 6.23%, 6.13% and 2.60% respectively.
  • Fund managers focusing on cryptocurrencies were up 19.19% in March as tracked by the Eurekahedge Crypto-Currency Hedge Fund Index – supported by the performance of Bitcoin which gained 25.92% during the month. On a year-to-date basis, cryptocurrency hedge funds are having their best start to the year as they generated 116.81% in the first quarter of 2021, thanks to the extraordinary performance of the cryptocurrency market in which the prices of some altcoins such as Dogecoin rose to an extreme level.

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1Based on 30.08% of funds which have reported March 2021 returns as at 21 April 2021