Hedge Funds Down 0.37% In 1Q16; AUM Declined By US$6.4 Billion Eurekahedge

Key highlights for March 2016:

  • Hedge funds were down 0.37% as of Q1 2016, with total AUM declining by US$6.4 billion – the first Q1 decline in hedge fund assets on record since 2009.
  • Event driven hedge funds posted the best returns among all strategic mandates during the month, up 3.16%. On the other hand, CTA/managed futures managers posted the steepest decline during the month, down 1.61%.
  • Distressed debt hedge funds were up for the first time after a four-month losing streak, posting returns of 3.03% during the month. Total AUM for the strategy has declined by almost US$8.0 billion over the last 12 months.
  • Latin American hedge funds were up for the second consecutive month, leading the table with gains of 4.85% during the month. On a year-to-date basis, Latin American hedge fund managers also topped the tables gaining 6.15% – the only regional mandate to post positive year-to-date returns as of March 2016.
  • European managers posted their third consecutive month of performance-based decline, totaling US$7.8 billion on a year-to-date basis. On the other hand, European managers also recorded the highest investor allocations across all regional mandates – US$8.1 billion on a year-to-date basis.
  • Asia ex-Japan managers were up for the first time this year, gaining 4.78% during the month. Performance-based gains of US$1.2 billion were recorded while investors allocated US$ 1.5 billion into the mandate during the month.
  • The global hedge funds industry grew by US$108.7 billion in 2015 with investor inflows accounting for three-quarters of the gain in assets. For more details, please refer to the 2015 Overview: Key Trends in Global Hedge Funds report.

2015 Overview: Key Trends in Global Hedge Funds

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Hedge funds recovered part of their losses from earlier in the year and were up 1.33% in March as underlying markets represented by the MSCI World Index gained 5.47% in what shaped up to be a positive month for global markets. The Fed’s decision to roll back further on its scheduled interest rate hikes for 2016, coupled with rising oil prices and monetary easing in China provided much need relief for the markets. As of end-Q1 2016, hedge funds are down 0.37%, ahead of underlying markets as the MSCI World Index posted losses of 1.97%.

Emerging markets mandated managers had a good month as oil and commodity prices stabilized, lending support to well-performing equity markets within the EM space. Dollar weakness was apparent during the latter half of March following dovish comments from the Fed, leading to some managers capturing gains as the Aussie and Euro rallied during the month. Central bank meetings also dominated the news in March, influencing reversals in the markets. Market reversals did not bode well for some CTA/managed futures and macro managers with returns languishing into negative territory during the month as comments made by central bankers led to choppy trading conditions. Policy shots remain a key theme for central bankers as they attempt to jolt the global economy amid a deflationary environment.

March 2016 and February 2016 returns across regions

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All regional mandates were up this month led by Latin American hedge fund managers with gains of 4.85%, followed by Asia ex-Japan hedge funds which gained 4.78% during the month. Oil price stabilisation and rate cuts from the PBOC propped up the performance for much of the emerging market space and provided some support for the good performance of global equity markets while investor interest in safe haven assets waned in March. Japanese managers were also up 2.45% while North American and European managers were up 1.96% and 0.90% respectively. On a year-to-date basis, Latin American managers topped the table with gains of 6.15%, the only regional mandate to post positive year-to-date returns. Japanese managers performed the worst on a year-to-date basis with losses of 2.83%.

2016 year-to-date returns across regions

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Mizuho-Eurekahedge Asset Weighted Index

The asset weighted Mizuho-Eurekahedge Index gained 1.40% in March. It should also be noted that the Mizuho-Eurekahedge Index is US dollar dominated, and during months of strong US dollar gains, the index results include the currency conversion loss for funds that are denominated in other currencies. The US Dollar Index fell 3.71% in March.

Performance was positive across the board among the Mizuho-Eurekahedge Indices with the Mizuho-Eurekahedge Emerging Markets Index up 7.01% during the month. The Mizuho-Eurekahedge Asia Pacific Index posted gains of 4.45%, followed by the Mizuho-Eurekahedge Long/Short Equities Index which gained 3.23% over the same period. In 2016 year-to-date, the Mizuho-Eurekahedge Emerging Markets Index posted the best gains, up 6.23% while the Mizuho-Eurekahedge Multi-Strategy Index posted the steepest decline down 1.05%.

Mizuho-Eurekahedge Indices
March 2016 returnsHedge Funds
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2016 year-to-date returnsHedge Funds

CBOE Eurekahedge Volatility Indexes

The CBOE Eurekahedge Volatility Indexes comprises four equally-weighted volatility indices ??long volatility, short volatility, relative value and tail risk. The CBOE Eurekahedge Long Volatility Index is designed to track the performance of underlying hedge fund managers who take a net long view on implied volatility with a goal of positive absolute return. In contrast, the CBOE Eurekahedge Short Volatility Index tracks the performance of underlying hedge fund managers who take a net short view on implied volatility with a goal of positive absolute return. This strategy often involves the selling of options to take advantage of the discrepancies in current implied volatility versus expectations of subsequent implied or realised volatility. The CBOE Eurekahedge Relative Value Volatility Index on the other hand measures the performance of underlying hedge fund managers that trade relative value or opportunistic volatility strategies. Managers utilising this strategy can pursue long, short or neutral views on volatility with a goal of positive absolute return.

During the month of March, the CBOE Eurekahedge Short Volatility Index led the tables with gains of 3.67% as volatility levels, represented by the CBOE VIX, slipped down to 13.95 by the end of March. Short volatility strategies managed to pocket strong gains, erasing most of their losses from earlier in the year. The CBOE Eurekahedge Relative Value Volatility Index was also up during the month with gains of 2.11% while long volatility and tail-risk hedge funds were down 3.00% and 3.46% respectively during the month. On a year-to-date basis, the CBOE Eurekahedge Relative Value Volatility Index was up 2.46%, followed by the CBOE Eurekahedge Short Volatility Index which had gained 0.60% over the same period. Meanwhile, the CBOE Eurekahedge Tail Risk Volatility Index and the CBOE Eurekahedge Long Volatility Index lost 1.31% and 1.09% on a year-to-date basis respectively.

CBOE Eurekahedge Volatility Indexes
March 2016 returns
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CBOE Eurekahedge Volatility Indexes
2016 year-to-date returns
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Summary monthly asset flow data since January 2012

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