Key Trends in Global Hedge Funds (April 2022)

The Eurekahedge Hedge Fund Index was down 2.00% year-to-date as of February 2022, outperforming the underlying global equity market as represented by the S&P 500 which was down 8.23% over the same period. 2020 was a very challenging year for global hedge funds as economic and market conditions were particularly dire. Global equities took a huge beating, particularly in March 2020 when the World Health Organisation declared COVID-19 a global pandemic. Supported by the Federal Reserve’s emergency move in March 2020 to cut benchmark interest rates to zero and restart quantitative easing, the global equity markets managed to stage a strong rebound from the March 2020 bottom, supporting the performance of global hedge funds over the subsequent nine months.

Global hedge funds managed to return 22.15% during the April 2020 to December 2020 period, allowing them to recoup all losses suffered in Q1 2020 and end the year on a positive note with a double-digit return of 12.80%. In 2021, global hedge funds have managed to sustain the positive momentum with the Eurekahedge Hedge Fund Index generating nine months of positive returns, except for July, September and November when hedge funds declined 0.36%, 0.64% and 1.24% respectively. The combination of strong fiscal support, accommodative monetary policy and high COVID-19 vaccination rates has enabled the gradual reopening of economies and strengthened the momentum of the global economic recovery. This led to a boost in investor risk-on sentiment which supported the performance of global equity markets and benefitted global hedge funds.

Meanwhile, the emergence of the highly contagious Omicron COVID-19 variant, combined with Russia’s shocking invasion of Ukraine in February has led to increased concern among market participants that the global economy could soon experience stagflation at a time when global central banks are tightening monetary policy to curb inflation. The US consumer price index was up 7.9% in February 2022, the highest level since January 1982. 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. To prevent further depreciation of the Russian rouble, the Russian central bank has hiked its policy rate to 20%. Despite their best efforts, the Russian rouble has continued to depreciate in March, hitting a low of US$0.0072 on 7 March 2022, marking a 44.2% depreciation from the end of January 2022. Stocks in the United States similarly fell as the S&P 500 and DJIA tumbled -3.14% and -3.53% in February respectively, extending their 2022 year-to-date losses to -8.23% 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.

Figure 1: Global hedge fund industry map

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