Hedge funds helped protect investors from the equity market turmoil in September, declining 2.2% during a volatile month that saw the S&P 500 decline 9.3%. Despite the relative outperformance, hedge fund industry AuM declined for the sixth consecutive month, falling $36.8bn, which extended the YTD decline to $178bn. Europe ($18.7bn) accounted for most of the AuM decline, driven by rising risk-off sentiment as the European Central Bank moved to raise interest rates by 75bps to combat soaring inflation, which hit a record high of 10% in September.
Hedge funds largely protected investors from the equity market turmoil in September, with the Eurekahedge Hedge Fund Index declining 2.1% against a volatile market backdrop that saw the S&P 500 decline 9.3%. The Federal Reserve raised interest rates by 75bps to 3.25% in September and signaled their commitment to act aggressively to bring down inflation to the Fed’s 2% target — even if that leads to economic weakness. In the UK, the Bank of England intervened in Britain’s bond market after investors rebuffed the fiscal package of PM Liz Truss’s new government, sparking market turmoil that sent the sterling to an all-time low versus the US dollar.
Asian hedge funds got off to a bad start in Q1 2020. AuM tumbled by $13.5bn as the onset of the pandemic forced government authorities to impose restrictive lockdowns, triggering an equity market sell-off that saw the CSI 300 and Hang Seng indices declines by 10.0% and 16.3%, respectively, in Q1 2020.
The first nine months of 2022 have been exceptionally challenging for the global financial markets, with rising geopolitical tensions, inflation, interest rates, recession concerns and the emergence of new, more transmissible variants of Covid-19 among an evergrowing list of worries that investors must grapple with, causing a spike in market volatility that has seen the CBOE Volatility Index rise 83.6% this year. Against this backdrop, the average healthcare hedge fund declined 22.1%, a disappointing return but still superior to the 24.8% fall of the S&P 500. Nevertheless, healthcare hedge funds have performed exceptionally well over the long-term.