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Key Trends in Global Hedge Funds (October 2020)

The Eurekahedge Hedge Fund Index was up 4.00% year-to-date as of August 2020, outperforming the underlying global equity market as represented by the MSCI ACWI IMI, which was down 0.89% over the same period. In the earlier months of 2020, the global equity market sharply declined due to the impact of COVID-19 pandemic, which stalled economic activity. The coronavirus started to spread outside Beijing in February, which heightened concerns among investors that resulted in back-to-back sell-off in the first quarter, particularly in March. The acceleration of COVID-19 infections forced government authorities to impose lockdown and strict social distancing measures. The implemented policy forced businesses deemed non-essentials to cease their operations temporarily. Weekly unemployment claims in the US reached a historical level, while its unemployment rate stretched to a level not seen since the Great Depression. In the first quarter of 2020, US equity benchmarks recorded their worst quarterly performance since 1987, with DJIA and S&P 500 plummeting 23.20% and 20.00%, while their March performance showed both stock indexes were down 13.74% and 12.51% respectively.

In the second quarter of the year, global equities exhibited a strong comeback driven by the massive economic stimulus to combat the adverse effect of COVID-19 and resumption of business activities in most countries. The DAX gained 23.90%, while the S&P 500 up 18.81% in Q2 2020. The Federal Reserve cut its policy rate to zero percent, and restarted their Quantitative Easing, while the ECB also resumed their asset purchases programme. On top of that, the US government also injected a fiscal stimulus measure which was the largest in American history that equals to around 12% of their total GDP. Global hedge funds slipped 8.01% in the first quarter, compared to 8.07% returned in the second quarter of 2020.

Figure 1: Global hedge fund industry map

The industry’s total assets under management (AUM) decreased by US$121.1 billion in 2020, driven by performance-based losses on top of substantial investor redemptions. Interest level among hedge fund investors has been weak, as the industry recorded nine consecutive quarters of net outflows from the Q2 2018 up to Q2 2020, totalling US$357.9 billion. However, investors sentiments towards the industry is showing a sign of recovery, as it recorded investor inflows of US$31.8 billion in Q3 2020.

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