It was a positive start for hedge funds in 2023, with industry AuM up $5.1bn in January, reversing December’s $7.8bn decline. This uptick was driven by impressive performance as net outflows were $3.3bn in January, which is encouraging after a challenging 2022 when industry AuM was down over $200bn – driven by $164bn of outflows.
Following flat performance in December (-0.6%), global hedge funds performed better in January despite the ongoing global economic turmoil, with the Eurekahedge Hedge Fund
Index up 2.7%. By comparison, the S&P 500 was up 6.2% and the Dow Jones was up 2.8%, illustrating that hedge funds were wrongly positioned for a continued bear market at the
start of 2023. Managers underestimated the improved equity market during January and the impact of slower central bank rate rises.
With global credit markets posting double digit drops last year, distressed debt hedge funds managed to stay positive with short positions, bespoke financing deals and some upward repricing of individual distressed bonds helping to counter higher inflation and growing recession fears. Average 2022 returns for our index of distressed debt hedge funds were
0.8%, putting it second behind CTAs and ahead of our general hedge fund credit index, while over three years the sector is well ahead of both credit hedge funds and the overall hedge fund universe.
After November’s promising uptick ($3.8bn), hedge fund industry AuM returned to the previous seven months’ record and was down $5.6bn in December, which took the YTD decline to $198bn. However, overall performance in December was impressive, up $8.5bn, with the net reduction driven by outflows of $14.1bn.
Hedge funds continued to perform well in December despite the global economic turmoil, with the Eurekahedge Hedge Fund Index only dipping 0.3% against a challenging market backdrop that saw the S&P 500 down 5.9%. Following the flat performance in December, global hedge funds held their 2022 losses to 3.8%. By comparison, the S&P 500 lost 19.4%, exemplifying the resilience that hedge funds displayed in navigating the market turmoil in 2022.