Asset Flows Update

The Eurekahedge Hedge Fund Index was down 44%1 in September, outperforming the global equity market as represented by the MSCI ACWI (Local) which returned -3.55% over the same period. Concerns over rising inflation continue to weigh on markets with the Federal Reserve raising its inflation forecast of the year to 4.2%, up from the previous estimate of 3.4%, driven by supply chain bottlenecks and the developing energy crisis in Europe and China which has pushed energy prices up by 11.60% in September. Compounding matters further, the OPEC+ decided to keep the supplies of oil tight leading to a surge in oil prices, with Brent crude oil and West Texas Intermediate crude oil up 9.52% and 9.91% in September respectively. In addition, the Federal Reserve announced that the tapering of quantitative easing would likely begin in November 2021 and finish by mid-2022, bringing an end to their bond buying programme. Against this backdrop, the 10-year US Treasury gained 19bp, the most since March 2021. The heightened risk aversion led to sharp declines in major US equity indices, with the NASDAQ, S&P500 and DJIA down 5.31%, 4.76% and 4.29% respectively. Over in Europe, returns were negative among equity benchmarks in the region with the DAX, Euro Stoxx 50 and CAC 40 down 3.63%, 3.53% and 2.40% respectively. The ongoing energy crisis as well as the political uncertainty post-Germany elections dampened market risk-on sentiment. Despite the challenges in Europe, the European Central Bank revised economic projections upward and aimed for a moderately lower pace of net asset purchases under the pandemic emergency purchase programme in the fourth quarter. Returns were mostly negative across geographic mandates in September with Japanese hedge funds leading the group with a return of 2.62% while Latin American hedge funds trailed behind their regional peers with a return of -1.56%. Across strategies, distressed debt and event driven outperformed their strategic peers with returns of 0.92% and 0.62% respectively throughout the month.

Final asset flow figures for August showed that hedge fund managers recorded performance-based gains totalling US$14.5 billion and net investor inflows of US$15.4 billion throughout the month. Preliminary data for September estimates that the global hedge fund industry witnessed US$7.9 billion of performance-driven losses combined with US$2.2 billion of net investor inflows. The assets under management (AUM) of the global hedge fund industry stood at US$2418.9 billion as of September 2021. The global hedge funds industry has seen US$89.5 billion of performance-based gains and US$80.9 billion of investor allocations throughout in 2021.

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

Key highlights for September 2021:

  • Hedge fund managers returned -0.44% in September, outperforming the global equity market as represented by the MSCI ACWI (Local) which returned -3.55% during the month. In terms of 2021 performance, global hedge funds were up 8.14%, recording the strongest September year-to-date return since 2009 despite the ongoing pandemic. Around 76.7% of the constituents of the Eurekahedge Hedge Fund Index generated positive returns in 2021.
  • On an asset-weighted basis, hedge funds returned -0.79% in September, as captured by the Eurekahedge Asset Weighted Index – USD. In terms of 2021 performance, the index is only up 3.18%, highlighting the struggles for some of the larger asset managers over the year.
  • The Eurekahedge North American Hedge Fund Index returned -0.12% in September, outperforming the pan-European Euro Stoxx 50 which returned -3.53%. Market risk sentiment was dampened due to the developing energy crisis in Europe and the heightened political uncertainty post-Germany elections. On a year-to-date basis, European fund managers were up 7.63%, recording their best September YTD performance since 2009.
  • The Eurekahedge Japan Hedge Fund Index gained 2.62% in September, supported by the robust returns of the Nikkei 225 which returned 4.85%. Investor sentiment was supported by the hope for a more dynamic and business-friendly government after Prime Minister Yoshihide Suga resigned amid anger over his government’s handling of the COVID-19 pandemic. On a year-to-date basis, Japanese fund managers were up 10.11%, recording their best September YTD performance since 2013.
  • The Eurekahedge Distressed Debt Hedge Fund Index gained 0.92% in September, extending their streak of consecutive positive monthly returns to twelve months. On a year-to-date basis, distressed debt hedge funds outperformed all of their main strategic peers and were up 13.06%, recording their best September YTD performance since 2009.
  • The Eurekahedge Commodity Hedge Fund Index gained 3.05% in September, supported by the strong return of the S&P GSCI Index which returned 6.03%. Energy was the best performing component in September, posting a return of 11.60% as Brent Crude Oil and West Texas Intermediate Crude Oil surged 9.52% and 9.91% respectively after OPEC+ decided to keep supplies tight despite the ongoing global energy crunch. On a year-to-date basis, commodity hedge funds were up 13.12%, recording their best September YTD performance since 2006.
  • The CBOE Eurekahedge Long Volatility Hedge Fund Index gained 0.97% in September. Concerns over rising inflation and the China Evergrande debt crisis spurred market volatility, causing a 40.41% surge in the CBOE Volatility Index which supported the performance of long volatility funds. On a year-to-date basis, long volatility hedge funds are still down 7.04% as the index generated negative returns in seven of the first nine months of the year.
  • Fund managers focusing on cryptocurrencies returned -8.80% in September as tracked by the Eurekahedge Crypto-Currency Hedge Fund Index, outperforming Bitcoin which returned -11.61% over the same period. In terms of 2021 return, cryptocurrency hedge funds have gained 117.42%, outperforming Bitcoin which returned 44.39% over the first nine months of the year.

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1Based on 54.08% of funds which have reported September 2021 returns as at 15 October 2021