Asset Flows Update

The Eurekahedge Hedge Fund Index declined -0.26%1 in February 2022, outperforming the S&P 500 which was down 3.14% over the same period. Global equities tumbled as Russia’s invasion of Ukraine, the most dangerous international conflict since the 1962 Cuban missile crisis has led to increasing concerns about stagflation at a time when global central banks are tightening monetary policy in a bid to cool inflation. In response to the invasion, the US and European countries imposed harsh economic sanctions on Russia, banning transactions with the Russian central bank and stopping it from deploying foreign reserves, essentially cutting Russia off from the global financial system. The RTS stock index and the Russian rouble plummeted -34.72% and -26.36% in February respectively as investors assessed the potential financial and economic impact on Russia. Stocks in the United States similarly fell as the S&P 500 and DJIA tumbled -4.05% and -3.53% in February respectively, extending their 2022 year-to-date losses to -9.09% and -6.73% respectively. Over in Europe, returns were negative among equity benchmarks in the region with the DAX and the Euro Stoxx 50 down -6.53% and -6.36% respectively. As Europe is highly reliant on Russian oil and gas supplies, European countries were disproportionately impacted by the sanctions imposed by Western nations on Russia which caused a spike in the price of commodities. The S&P Goldman Sachs Commodity Index surged 8.77% in February, while Brent crude and West Texas Intermediate Crude Oil were up 11.41% and 9.52% respectively. Returns were mixed across geographic mandates in February, with the Japanese mandate taking the lead with a return of 0.21% while the European and Asia ex-Japan mandates trailed behind with returns of -1.46% and -1.05% respectively. Across strategies, the CTA/managed futures mandate performed the best with a return of 1.78% while the fixed income mandate trailed behind their peers with a return of -1.44%.

Final asset flow figures for January showed that hedge fund managers recorded performance-based losses totalling US$21.4 billion counterbalanced by net investor redemptions of US$11.3 billion throughout the month. Preliminary data for February estimates that the global hedge fund industry witnessed US$6.5 billion of performance-driven losses combined with US$3.0 billion of net investor inflows. The assets under management (AUM) of the global hedge fund industry stood at US$2406.9 billion as of February 2022. The global hedge funds industry has seen US$27.9 billion of performance-based decline and US$14.3 billion of investor redemptions throughout in 2022.

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

Key highlights for February 2022:

  • Hedge fund managers were down -0.26% in February – recording their second consecutive month of outperformance against the S&P 500 which slipped -3.14% during the month. Nearly half of global hedge funds have posted positive returns in February while around 43.0% of them have maintained positive performance over the first two months of the year.
  • On an asset-weighted basis, hedge funds were down -0.29% in February, 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 -0.45% while medium hedge funds as represented by the Eurekahedge Medium Hedge Fund Index posted relatively larger losses of -0.70%.
  • The Eurekahedge CTA/Managed Futures Hedge Fund Index was up 1.78% in February, outperforming their strategic mandate peers. Fund managers benefitted from the sharp increase in commodity prices due to the ongoing conflict in Ukraine and Russia as the US and their European Allies impose sanctions on Russian oil and gas, exacerbating the already tight global oil supply.
  • In terms of asset flow, CTA/managed futures fund managers also recorded the largest performance-based gains and investor allocations of US$11.5 billion and US$7.3 billion respectively – posting their highest monthly AUM increase in the history. On the other end of the spectrum, their long/short equities counterpart logged US$13.2 billion of performance-based losses and US$7.0 billion of investor redemptions over the same period.
  • The Eurekahedge Fixed Income Hedge Fund Index was down 1.44% in February, posting their weakest monthly performance since the market meltdown in March 2020. The higher inflation rates, particularly in the US which is the highest in the last four decades have led into an extremely hawkish Federal Reserve which just raised their fed fund rates by 50 bps this March and are expected to increase again their rate by half percentage point this June.
  • Emerging markets hedge funds were down -1.28% in February, bringing their year-to-date return to -2.78% over the first two months of the year. The hawkish stance of the Federal Reserve on top of the geopolitical conflict in Eastern Europe have resulted in a stronger US dollar and a weaker equity market in the developing region.
  • Tail risk and long volatility hedge funds generated positive returns in February and were up 3.81% and 0.84% respectively, driven by heightened market volatility, with the CBOE VIX reaching 31.28 by the end of February. The ongoing war between Russia and Ukraine have triggered risk-off market sentiment throughout the month. On the other hand, their relative value and short volatility peers were down by -1.34% and -0.43% over the same month respectively.
  • Fund managers focusing on cryptocurrencies gained 4.29% in February, ending their three-month losing streak since November 2021. Despite the ongoing Russia-Ukraine war, Bitcoin was surprisingly less affected by the market volatility, retreating by only -0.58% in February. Russian investors increasingly view digital assets as an alternative way to move financial assets away from the Russian rouble, which has depreciated more than 40% as Russia was banned from accessing the global SWIFT payment system due to sanctions imposed by the US and their European allies.
  • The Eurekahedge Trade Finance Hedge Fund Index was up 0.53% in February, bringing its year-to-date return to 1.06% as of February 2022. Amidst the rising yields driven by inflationary pressures and geopolitical conflict in the Eastern Europe region between Ukraine and Russia resulting in heightened market volatility, trade finance hedge funds remained resilient by delivering consistent positive returns to their investors.

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1Based on 71.72% of funds which have reported February 2022 returns as at 23 March 2022