Hedge Fund Performance Commentary

The Eurekahedge Hedge Fund Index declined -1.23%1 in January, outperforming the global equity market as represented by the MSCI ACWI (Local) which declined -4.91% over the same period. Global equity markets sank after investors grew increasingly concerned about the escalating Russia-Ukraine crisis and the hawkish policy stance of the Federal Reserve to quell rising inflation, dampening the performance of hedge funds. The US consumer price index had surged to a 40 year high of 7.5% in January, compelling the Federal Reserve to hike rates sooner rather than later. The Federal Open Market Committee (FOMC) has indicated that rate hikes would likely take place in March just as quantitative easing ends. The prospect of tighter monetary policy resulted in the 10-year Treasury note hitting 1.78% for the first time since December 2019, negatively impacting the global equity market. The NASDAQ Composite and the S&P 500 posted their worst monthly performance since March 2020, declining -8.98% and -5.26% in January respectively. Over in Europe, returns were negative among equity benchmarks in the region with the Euro Stoxx 50 and DAX down -2.88% and -2.60% respectively. Even though annual Eurozone inflation hit a record high of 5.1% in January, more than double the European Central Bank’s 2% inflation target, Bank President Christine Lagarde has said that it is very unlikely that the bank will raise interest rates this year as temporary factors are behind the rise and inflation should eventually fade on its own. Returns were negative across geographic mandates in January, with Latin American hedge funds the only exception with a positive return of 2.01% while the European and North American mandates trailed behind with returns of -1.08% and -2.02% respectively. Across strategies, the CTA/managed futures and macro mandates performed the best with returns of 0.87% and 0.65% respectively while the event driven and long short equities mandates lagged behind their peers with returns of -1.80% and -2.67% respectively.

Roughly 41.2% of the underlying constituents of the Eurekahedge Hedge Fund Index posted positive returns in January, and 34.9% of the hedge fund managers in the database were able to maintain a double digit return in 2021.

Figure 1: January 2022 and December 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 9.35%, 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 14.02%, followed by Japanese hedge funds which returned 8.60%. At the other end of the spectrum, Latin American hedge funds lagged the group with a return of -2.98%.

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1Based on 56.10% of funds which have reported January 2022 returns as at 18 February 2022