Asset Flows Update

The Eurekahedge Hedge Fund Index declined -0.56%1 in May, trailing behind the S&P 500 which ended the month roughly flat. Heightened market volatility persisted through the month as the market continues to face strong headwinds from the ongoing war in Ukraine, COVID-19 pandemic, rising inflation and the potential for a faster pace of monetary policy tightening, fanning concerns that the economy might be moving towards a recession in the near future. The US consumer price index accelerated to 8.6% year-over-year in May, the highest level since December 1981 while the core CPI, which strips out the more volatile food and energy components increased 6% from a year ago. This prompted the Federal Reserve to pump the brakes on the economy even harder, announcing a further 75bps hike on June 15 with a potential for a further 75 or 50 bps move at the next policy meeting in July. Over in Europe, returns were mixed among equity benchmarks in the region with the RTS Index up 11.71% while the Euro Stoxx 50 and CAC 40 Index were down -0.36% and -0.99% respectively. The high prices for commodities, which is Russia’s key source of revenue combined with the imposition of capital controls has enabled the Russian rouble to appreciate by a further 14.29% against the US dollar in May, supporting the performance of the RTS Index. Meanwhile, Eurozone inflation surged to a record high of 8.1% in May from 7.4% in April, more than four times the European Central Bank’s 2% target. Concerned by this price surge, the European Central Bank has announced that it would end quantitative easing on July 1 and hike interest rates by 25 bps on July 21, followed by a potentially larger 50 bps increase in September. If the 50 bps hike materialise, it would be the ECB’s largest one-off rate increase since June 2000. Returns were mostly negative across geographic mandates in May, with the Latin American mandate the only exception with a return of 1.40% while the Asia ex-Japan mandate fared the worst with a return of -0.97%. Across strategies, macro performed the best with a return of 0.11% while the event driven mandate trailed behind their peers with a return of -1.77%.

Final asset flow figures for April showed that hedge fund managers recorded performance-based gains totalling US$4.4 billion and net investor redemptions of US$29.1 billion throughout April. Preliminary data for May estimates that the global hedge fund industry witnessed US$2.4 billion of performance-driven decline and US$19.1 billion of net investor outflows. The assets under management (AUM) of the global hedge fund industry stood at US$2379.5 billion as of May 2022. The global hedge funds industry has seen US$1.8 billion of performance-based gains and US$71.4 billion of investor redemptions throughout in 2022.

Summary monthly asset flow data since January 2013

Key highlights for May 2022:

  • Hedge fund managers were down -0.56% in May, outperforming the tech-heavy NASDAQ by 1.49% but trailed behind the S&P 500 by 0.57%. Around 39.6% of global hedge funds have generated positive returns in May, while around 40.0% of them have maintained a positive performance throughout the year. On a year-to-date basis, global hedge funds were down -2.66%, outperforming the S&P 500 which returned -13.30% over the same period.
  • Global hedge funds asset under management went down by US$21.5 billion in May driven by a performance-based decline of US$2.4 billion combined with net outflows of US$19.1 billion. On a year-to-date basis, global hedge funds reported net investor redemptions of US$71.4 billion, marking its highest May year-to-date outflows since 2009, while the industry posted performance-based growth of US$1.8 billion throughout the year.
  • CTA/managed futures, macro and multi-strategy reported a combined performance-based growth of US$81.2 billion throughout the year, thanks to the ability of these fund managers to allocate their assets into well-performing markets in the period. In terms of net flows, the three mandates posted a total net outflow of US$0.7 billion during the year.
  • On an asset-weighted basis, hedge funds were down 0.23% in May, as captured by the Eurekahedge Asset Weighted Index – USD, outperforming its equal-weighted counterpart by 0.33%. On a year-to-date basis, the Eurekahedge Asset-Weighted Index – USD was down -1.69% over the first five months of the year.
  • The Eurekahedge CTA/Managed Futures Hedge Fund Index was down -0.26% in May, snapping its five-month winning streak. Commodity prices except for oil retreated during the month owing to the concern over an impending global recession driven by the hawkish Federal Reserve and geopolitical uncertainty. In terms of year-to-date return, CTA/managed futures hedge funds were up 8.06% over the first five months of the year.
  • Emerging market hedge funds, as represented by the Eurekahedge Emerging Markets Hedge Fund Index were up 0.40% in May, outperforming its developed market peers in North America and Europe who were down by -0.36% and -0.89% respectively. The positive performance of the equity market in the emerging market particularly in Asia and Latin America supported the fund manager’s performance during the month. China’s Shanghai Composite was up 4.57% in May, while Brazil’s IBOVESPA was up 3.22% over the same period.
  • The Eurekahedge North America Long Short Equities Hedge Fund Index was down 0.27% in May, reducing its year-to-date return to -7.85%. US equities on average ended the month flat as seen by the S&P 500 and Dow Jones, while US tech companies declined as seen by the -2.05% return of the NASDAQ Composite. Selling pressure on US equity markets continued during the first half of May due to higher inflation rates in the region which have resulted in an increasingly hawkish Federal Reserve. In the second half of May, US equities recovered their losses and ended the month flat, thanks to the easing lockdowns in China and market expectations that inflation rates in the region have reached its peak.
  • Fund managers utilising tail risk strategies as represented by the CBOE Eurekahedge Tail Risk Hedge Fund Index were down -3.21% in May. Despite the losses incurred in May, tail risk hedge fund managers outperformed their strategic peers in 2022, supported by heightened market volatility throughout the year. Institutional investors are allocating two to four percent of their assets under management to tail risk strategies, with the potential for further growth in the future as more fund managers seek to hedge their portfolios against black swan events given the increasingly challenging and volatile market environment. On a year-to-date basis, tail risk hedge funds were up 6.82% as of May 2022.
  • Fund managers focusing on cryptocurrencies as represented by the Eurekahedge Crypto-Currency Hedge Fund Index declined -19.31% in May, reducing their year-to-date return to -37.69%. Similar to other risk asset classes, the magnitude of market breakdown has also impacted the cryptocurrency market. Bitcoin was down -17.83% in May, while Ethereum the second-largest cryptocurrency in terms of market value was much more volatile as it recorded -29.07% of losses during the month. By comparison, cryptocurrency hedge funds posted a May year-to-date return of -35.52% in 2018, the worst year for cryptocurrency hedge funds since the inception of the index in terms of full year returns.

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1 Based on 66.26% of funds which have reported May 2022 returns as at 20 June 2022