Asset Flows Update

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 tanked after market risk sentiment was dampened due to geopolitical concerns over the escalating Russia-Ukraine crisis and the increasingly hawkish policy stance of the Federal Reserve to quell rising inflation, negatively impacting the performance of hedge funds. Russia has amassed up to 190,000 troops near their border with Ukraine, fanning speculation among Western countries that Russia could invade Ukraine to stop them from getting too close to NATO. A war in Ukraine would derail the ongoing global economic recovery and could push energy and oil prices even higher as Ukraine is a key transit hub for Russian oil and gas to Europe. The US consumer price index surged to 7.5% in January, the highest level since 1982. In a bid to manage inflation, 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 they continue to view inflation as transitory. 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.

Final asset flow figures for December showed that hedge fund managers recorded performance-based gains totalling US$35.4 billion on top of net investor inflows of US$0.9 billion throughout the month. Preliminary data for January estimates that the global hedge fund industry witnessed US$8.8 billion of performance-driven losses combined with US$10.1 billion of net investor outflows. The assets under management (AUM) of the global hedge fund industry stood at US$2430.2 billion as of January 2022. The global hedge funds industry has seen US$125.0 billion of performance-based gains and US$75.6 billion of investor allocations n 2021.

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

Key highlights for January 2022:

  • Hedge fund managers started the year in the red with losses of -1.23%, outperforming the underlying equity market as represented by the MSCI ACWI (Local) which returned -4.91% over the month. In terms of their 2021 performance, global hedge funds have returned 9.35%, recording their second-best performance since 2010.
  • Global hedge funds total asset under management (AUM) by the end of 2021 stood at US$2,449.1 billion, driven by both performance-based growth and investor allocations of US$125.0 billion and US$75.6 billion respectively.
  • European and North American hedge funds recorded the largest year-on-year increase in their AUM among their regional peers. European hedge funds total AUM increased by US$44.5 billion to US$507.9 billion, while North American hedge funds total AUM increased by US$139.5 billion to US$1663.5 billion in 2021.
  • On an asset-weighted basis, hedge funds were down -0.75% in January, as captured by the Eurekahedge Asset Weighted Index – USD. The ability of larger hedge funds to allocate their AUM flexibly to manage volatility enabled them to outperform against their smaller peers during the month. Billion-dollar hedge funds as represented by the Eurekahedge Billion Dollar Hedge Fund Index were down -0.14% while medium hedge funds as represented by the Eurekahedge Medium Hedge Fund Index posted relatively larger losses of -0.96%.
  • The Eurekahedge North American Hedge Fund Index was down -2.02% in January, outperforming the three main US indexes with the NASDAQ, S&P 500 and DJIA posting -8.98%, -5.26% and -3.32% of losses during the month respectively. In terms of 2021 performance, North American hedge funds gained 14.02%, recording their second consecutive year of double-digit returns.
  • Pan-Asia hedge funds also suffered losses in January with the Eurekahedge Asia ex-Japan Hedge Fund Index and the Eurekahedge Japan Hedge Fund Index posting -3.39% and -2.46% of losses respectively. In terms of 2021 performance, the two Asian mandates posted 6.79% and 8.60% return respectively as the slowing growth in China combined with the hawkish stance of the Federal Reserve contributed to the weakness of the broader equity market in the region.
  • The Eurekahedge CTA/Managed Futures Hedge Fund Index was up 0.87% in January, outperforming their strategic peers during the month. In terms of their asset flows, CTA/managed futures funds posted an AUM increase of US$26.5 billion in 2021, of which US$19.3 billion came from net flows. Investors are increasingly optimistic about investing in CTA/managed futures funds driven by higher energy prices.
  • The CBOE Eurekahedge Long Volatility Hedge Fund Index was up 2.04% in January, supported by the increase in volatility in the market, with the CBOE VIX reaching 24.83 at the end of January. Among their volatility index peers, only long volatility hedge funds generated a positive return as their short volatility, relative value and tail risk peers were down -0.03%, -0.91% and -1.76% respectively.
  • Fund managers focusing on cryptocurrencies declined -19.31% in January – recording their deepest losses since November 2018, as tracked by the Eurekahedge Crypto-Currency Hedge Fund Index. Bitcoin prices retreated to $37,000 from its all-time high of $68,000 recorded in November 2021. In January, the leading cryptocurrency Bitcoin slipped -19.52%, while the second leading cryptocurrency Ethereum was down -29.81%.

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