Key Trends in European Hedge Funds (May 2021)

The Eurekahedge European Hedge Fund Index was up 3.83% as of March 2021 year-to-date, supported by the robust performance of the underlying equity market in the region as reflected by the 7.02% return of the MSCI AC Europe IMI over the same period. The speedy COVID-19 vaccine rollout on top of the accommodative monetary policy exhibited by the European Central Bank to support the economies from the ongoing crisis acted as a tailwind to the equity market in the region. The EURO STOXX 50 which represents the leading blue-chip companies in the Euro Zone recorded a double-digit return of 10.32% over the first three months. In the same vein, DAX and CAC 40 were up 9.40% and 9.29% over the same period thanks to the gradual economic recovery in the region as seen on their strong macroeconomic data.

The European hedge fund industry AUM stood at US$470.2 billion as of March 2021, up by US$6.7 billion from the end of 2020 figure, attributed to strong performance-based growth of US$7.6 billion, partially offset with investor redemptions of US$0.9 billion. In 2020, 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. In the same vein, the European hedge fund industry also recorded its highest annual closures of 473 in 2020, surpassing the posted launches of 252 in the same year. As of March 2021, the European hedge fund industry population stood at 3,472 hedge funds, down from 3,460 by end-2020.

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 was not 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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