Hedge Fund Performance Commentary

The Eurekahedge Hedge Fund Index was declined 1.01%1 in December, supported by the robust performance of the global equity market as represented by the MSCI ACWI (Local) which returned 3.55% over the same period. Risk sentiment was weighed down in the first half of December due to the surge in COVID-19 cases caused by the emergence of the highly contagious Omicron variant which caused global COVID cases to surge to unprecedented levels. Compounding matters further, the Federal Reserve announced that it will double the pace of its tapering of quantitative easing to $30 billion per month, beginning in January and conclude the asset purchase program in March 2022, three months earlier than originally planned. This led to considerable uncertainty among market participants as they feared that the negative effects of the reimposition of COVID movement restrictions combined with hawkish central bank policies would derail the momentum of the global economic recovery

Risk sentiment improved over the second half of December after new evidence emerged suggesting that the Omicron variant is less severe than previous variants and leads to lower rates of hospitalisation and deaths. In addition, the efficacy of existing COVID-19 vaccines against Omicron can be further improved with a booster shot, leading to optimism that the Omicron wave would not be as devastating as the previous Delta wave. This boost to sentiment provided strong support to US equities, with the DJIA and S&P500 posting gains of 5.38% and 4.36% in December respectively. Over in Europe, returns were positive among equity benchmarks in the region with the CAC 40 and Euro Stoxx 50 taking the lead with returns of 6.43% and 5.79% respectively. Despite the reimposition of restrictions in some countries to protect their healthcare systems from being overwhelmed, investors remain optimistic that the global economy remains on track to grow at an above trend rate over the course of 2022. Returns were positive across geographic mandates in December, with the Japanese and North American mandates performing the best with returns of 2.07% and 1.79% respectively while the Latin American and Asia ex-Japan mandates lagged their regional peers with returns of 0.95% and 0.63% respectively. Across strategies, the long/short equities and macro mandates performed the best with returns of 1.57% and 1.47% while the arbitrage and distressed debt mandates lagged their peers with returns of 0.47% and 0.14% respectively.

Roughly 71.4% of the underlying constituents of the Eurekahedge Hedge Fund Index posted positive returns in December, and 35.8% of the hedge fund managers in the database were able to maintain a double digit return in 2021.

Figure 1: November 2021 and October 2021 returns across regions

Figure 2 illustrates the 2021 performance of hedge fund managers across regions. As of the end of 2021, most of the geographic mandates have recorded positive returns with Latin America the only exception. Global hedge funds posted their second best annual performance since 2010 despite the ongoing pandemic with a 2021 return of 9.49%, supported by the strong performance of the MSCI ACWI (Local) which has returned 18.93% over the same period. North American hedge funds outperformed their regional peers with a return of 14.46%, followed by Japanese hedge funds which returned 9.10%. At the other end of the spectrum, Latin American hedge funds lagged the group with a return of -3.79%.

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1Based on 50.56% of funds which have reported December 2021 returns as at 13 January 2022