Key Trends in European Hedge Funds (October 2021)

The Eurekahedge European Hedge Fund Index was up 7.83% as of August 2021 year-to-date, supported by the robust performance of the MSCI AC Europe IMI (Local) which gained 17.12% over the same period. In the first eight months of 2021, European equity markets posted robust gains despite the continued spread of COVID-19 in the region as many large Eurozone countries have achieved high levels of vaccine coverage which helped to alleviate the need to implement costly lockdowns and enabled their economies to remain largely open. Eurozone inflation rose 0.8% in August to 3.0% year on year, the highest level since 2008 while core inflation more than doubled to 1.6% year on year to the highest since mid-2012. Nevertheless, the European Central Bank sees the inflation risk as transitory and continues to forecast below target inflation over the medium term. As such, even though a small reduction of asset purchases is expected in the coming months, net asset purchases are expected to remain well beyond the level of the US Federal Reserve to provide ample support for the economic recovery in the Euro Area. The CAC 40 Index was the best performer among its European peers, gaining 20.33% over the first eight months of 2021. In comparison, the Euro Stoxx 50, DAX and FTSE All Share Index were up 18.12%, 15.43% and 11.88% respectively over the same period, exemplifying the strong equity market gains in the region.

In 2020, the onset of the COVID-19 pandemic wrecked investors’ confidence, causing a staggering US$55.2 billion AUM decline in Q1 2020 as the European hedge fund industry recorded US$30.0 billion of performance-based losses and US$25.2 billion of net investor outflows over the first quarter of 2020. The European hedge fund industry managed to stage a rebound over the subsequent nine months to end the year with an AUM of US$463.4 billion, recording US$48.4 billion of AUM growth attributed to US$41.2 billion of performance-based growth and US$7.3 billion of net investor inflows. This positive momentum persisted into 2021, as the European hedge fund industry recorded performance-based gains of US$19.0 billion and net investor inflows of US$14.4 billion as investors’ confidence was buoyed by the accelerating vaccination programme and strong fiscal and monetary policy support provided by European governments and central banks. As of August 2021, the European hedge fund industry AUM has surpassed pre-pandemic levels and currently stands at US$496.9 billion, attributed to US$19.0 billion of performance-based gains and US$14.4 billion of net investor inflows.

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.

The full article is available in The Eurekahedge Report accessible to paying subscribers only.

Subscribers may continue to login as usual to download the full report and non-subscribers may email to enquire on how to obtain the full research report.