Research

Asset Flows Update

The Eurekahedge Hedge Fund Index declined -1.14%1 in November, outperforming the global equity market as represented by the MSCI ACWI (Local) which returned -2.03% over the same period. Market risk sentiment was dampened after the arrival of a new Omicron variant of COVID-19 in late November caused panic in the market. Early indications have suggested that Omicron may be a lot more contagious than previous variants and existing vaccines are less effective against it, potentially derailing the global economic recovery if governments are forced to reimpose restrictive lockdown measures to slow down the rate of transmission and prevent healthcare systems from being overwhelmed by a huge surge of COVID-19 patients. Compounding matters further, the Federal Reserve has indicated that it no longer sees inflation as transitory and that there are plans to reduce quantitative easing at a much faster rate than initially planned. The resulting uncertainty led to a surge in market volatility, as seen in the 67.22% increase in the CBOE VIX and negatively impacted the performance of global equities. The DJIA and S&P500 posted declines of -3.73% and -0.83% in November respectively, bringing their year-to-date return down to 12.67% and 21.59% respectively. Over in Europe, returns were negative among equity benchmarks in the region with the Euro Stoxx 50 and DAX down -4.41% and -3.75% respectively. The emergence of the new Omicron coronavirus has already forced some European countries to reintroduce restrictions on activity, most notably in England where Prime Minister Boris Johnson has announced a move to Plan B to protect the NHS from unsustainable pressure and buy time to deliver more booster shots. Returns were negative across geographic mandates in November, with Asia ex-Japan hedge funds leading the group with a return of -0.19% while Japanese hedge funds trailed behind their regional peers with a return of -1.69%. Across strategies, arbitrage hedge funds outperformed their strategic peers with a return of 0.25% in November while CTA/Managed Futures hedge funds were the worst performer with a return of -2.20%.

Final asset flow figures for October showed that hedge fund managers recorded performance-based gains totalling US$20.9 billion on top of net investor inflows of US$8.6 billion throughout the month. Preliminary data for November estimates that the global hedge fund industry witnessed US$15.9 billion of performance-driven losses combined with US$19.4 billion of net investor outflows. The assets under management (AUM) of the global hedge fund industry stood at US$2408.0 billion as of November 2021. The global hedge funds industry has seen US$94.6 billion of performance-based gains and US$64.9 billion of investor allocations throughout in 2021.

Figure 1a: Summary monthly asset flow data since January 2013
 

Key highlights for November 2021:

  • Hedge fund managers declined -1.14% in November, bringing the YTD gain to a still strong 8.36%. The emergence of the Omicron variant, increasing inflation concerns and hawkish Fed communications triggered risk-off sentiment which led to the global equity market as represented by the MSCI ACWI (Local) declining -2.03% over the month. Around 73.0% of the constituents of the Eurekahedge Hedge Fund Index generated positive returns in 2021.
  • On an asset-weighted basis, hedge funds declined -1.77% in November, as captured by the Eurekahedge Asset Weighted Index – USD. In terms of 2021 performance, the index is only up 2.46%, highlighting the struggles for some of the larger asset managers over the year.
  • The Eurekahedge North American Hedge Fund Index declined -0.76% in November, outperforming the DJIA which fell -3.73% over the month. American stock markets came under pressure after Federal Reserve Chairman Jerome Powell indicated that a swifter tapering of asset purchases was under consideration, which surprised market participants given elevated risks from Omicron. On a year-to-date basis, North American fund managers were up 12.66%, recording their best November YTD performance since 2009.
  • The Eurekahedge European Hedge Fund Index declined -1.37% in November, outperforming the pan-European Euro Stoxx 50 which fell -4.41% over the month. Market risk sentiment was dampened due to the emergence of the new Omicron coronavirus variant which forced some European countries to reintroduce restrictions on activity. On a year-to-date basis, European fund managers were up 6.81%, recording their best November YTD performance since 2013.
  • The Eurekahedge Asia ex Japan Hedge Fund Index declined -0.19% in November, bringing the YTD gain to 6.73%. The mandate faced headwinds from the -2.92% decline of the MSCI AC Asia Pacific Ex Index over the month as investors were spooked by the emergence of the Omicron variant of COVID-19 which could render existing vaccines less effective and necessitate the reimposition of restrictive lockdowns.
  • The Eurekahedge CTA/Managed Futures Hedge Fund Index declined -2.20% in November, outperforming the S&P GSCI Index which fell -10.82% over the month. Brent crude oil and West Texas intermediate crude oil fell -15.55% and -19.04% in November respectively due to concern the new Omicron variant would result in reduced demand. On a year-to-date basis, CTA/Managed Futures hedge funds were up 5.70%, recording their best November YTD performance since 2014.
  • The Eurekahedge Long Short Equities Hedge Fund Index declined -1.43% in November, erasing all gains made in the previous month after a hawkish turn from major central banks in the fight against inflation unsettled investors. On a year-to-date basis, long/short equities hedge funds were up 9.34%, recording the third highest November year-to-date return among the main strategic mandates.
  • The Eurekahedge Event Driven Hedge Fund Index declined -1.28% in November, erasing most gains made in October. On a year-to-date basis, event driven hedge funds were up 12.38%, recording their best November YTD performance since 2013.
  • The Eurekahedge Arbitrage Hedge Fund Index eked out a modest 0.25% return in November, bringing the YTD gain to 4.47% and extending its streak of consecutive positive monthly returns to four months. Arbitrage was the only strategy among the main strategic mandates that managed to post a positive return in November.
  • The CBOE Eurekahedge Long Volatility Hedge Fund Index gained 1.20% in November, bringing the November year-to-date return to -7.12%. Long volatility hedge funds benefitted from the 67.22% surge in the CBOE VIX in November due to increased uncertainty over how central banks and interest rates would respond to persistently high inflation and the impact of the Omicron variant on the trajectory of the economic recovery.
  • Fund managers focusing on cryptocurrencies declined -2.37% in November as tracked by the Eurekahedge Crypto-Currency Hedge Fund Index, outperforming Bitcoin which fell -6.52% over the same period. In terms of 2021 return, cryptocurrency hedge funds have gained 171.11%, outperforming Bitcoin which returned 101.03% over the first 11 months of the year.

The full article is available in The Eurekahedge Report accessible to paying subscribers only.

Subscribers may continue to login as usual to download the full report and non-subscribers may email database@eurekahedge.com to enquire on how to obtain the full research report.


Footnote

1Based on 63.10% of funds which have reported November 2021 returns as at 16 December 2021