Hedge Funds Gain 4.62% Year-To-Date As AUM Grows By $117 Billion

Highlights

• Hedge funds are up 4.62% year-to-date, and based on preliminary returns reported by funds with daily liquidity, we expect the index to be broadly flat in December and finish in the 4% to 5% range for 2014, according to new data from Eurekahedge
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• The total AUM of the industry grew by US$117 billion in 2014 – well below the levels seen in 2013 when industry assets grew by US$240 billion.
• Net asset inflows for the year stand at US$40.8 billion, one-third of the inflows recorded in 2013. Inflows for 1H 2014 stood at US$75.8 billion while 2H 2014 has seen net outflows of US$35 billion.
• Asia ex-Japan investing funds have delivered the best returns globally and are up 8.54% for the year, outperforming the MSCI Asia ex Japan by over 400 basis points.
• CTA/managed futures funds have reported performance-based gains of US$18.7 billion for the year which is their highest November year-to-date gain since 2008, with North American CTAs leading with year-to-date returns of 9.22%.
• India investing hedge funds reported their tenth consecutive month of positive returns with managers deploying long/short equities strategy up 54.44% year-to-date – outperforming the BSE Sensex by almost 20%.
• European managers continue to face headwinds, generating only 1.21% of returns for the year. They have reported strong investor withdrawals of US$14.8 billion in the second half of 2014, their highest 2H withdrawals since 2011 when investors redeemed US$38.3 billion. For details please refer to the 2014 Key Trends in European Hedge Funds Report.

Hedge funds performance update

Hedge funds rebounded from the prior two months’ losses, finishing the month up 1.40%^[1], underperforming underlying markets as the MSCI World Index^[2] gained 2.34%. Global equity markets extended their rally into November after the previous month’s v-shaped recovery, with investors piling back into risky assets as October’s fall was seen as a healthy correction after a lengthy period of rising prices. Investors remained in a buoyant mood about the markets, evidenced by the CBOE VIX Index falling 4.99% during the month, with strong gains in developed economies as well as emerging Asia. The Bank of Japan (BoJ) and the European Central Bank remains firm in their stance towards combating inflation, with the People’s Bank of China also lowering interest rates in November for the first time since 2012. Falling oil prices continued to make headlines during the month, with the OPEC’s decision not to cut oil production catalysing a further fall in energy prices and creating an uphill battle for European and Japanese policy makers trying to combat deflation. On the whole, as oil prices continue to fall and inflation expectations remain subdued, the much anticipated hike in global interest rates is likely to be pushed further down the road – much to the benefit of equities in the developed world.

October and November 2014 returns across regions

Japan managers were the best performers during the month, returning 2.30% as the benchmark Nikkei 225 index rallied 6.37% following the BOJ’s determination to keep inflation rising and the postponement of a planned increase in consumption tax. North American funds were also up 1.27% as strengthening fundamentals and falling unemployment within the US have supported equities higher, with US third quarter GDP recently undergoing an upwards revision, exceeding market expectations and bolstering confidence in the country’s recovery. The Eurekahedge Asia ex Japan Fund Index gained 1.26% during the month following the People Bank of China’s announcement of a cut in rates, which was interpreted positively as the beginning of another rate cut cycle in China. European funds managed to gain 0.91% in November even though economic outlook and inflation in the region remain weak despite monetary stimulus measures. Mangers investing with a Latin American mandate made a small gain of 0.24% in November, outperforming the MSCI Latin America Index^[3] which lost 0.53%.

On a year to date basis, Asia ex-Japan managers lead the table with returns of 8.54%, attributing much of their gains to exposure to Indian equities, which has risen 35.54%^[4] since the start of the year. Funds with a North American and Japan mandate came in second and third place, delivering returns of 5.78% and 5.73% respectively. Latin America focused funds returned 3.13% while European managers came in last place at 1.21%.

2014 year-to-date returns across regions

Mizuho-Eurekahedge Asset Weighted Index

The asset weighted Mizuho-Eurekahedge Index was up 1.36% in November. The top 100 constituents performed better with their smaller counterparts, gaining 1.70% in comparison. It should be noted that the Mizuho-Eurekahedge Index is US dollar denominated and as such 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 appreciated 1.66% in November, based on the US dollar Index.

The asset weighted Mizuho-Eurekahedge Emerging Markets Hedge Fund Index lost 1.73%, dragged down by the strong US dollar as well as disappointing performance out of the Latin American region. Declining commodity prices have put further pressure on their currencies, accelerating capital outflows from the region, causing the MSCI Emerging Markets Index^[5] to fall 1.18%. As at November 2014 year-to-date, the Mizuho-Eurekahedge Asia Pacific Hedge Fund Index has gained 4.79%, the largest return out of all regional mandates.

Mizuho-Eurekahedge Indices November 2014 returns

Mizuho-Eurekahedge Indices November 2014 year-to-date returns

 

Hedge funds resumed their upward climb for the year, with the Eurekahedge Hedge Fund Index gaining 1.40%[6], underperforming underlying markets as the MSCI World Index[7] climbed 2.34% after bouncing back from October’s major sell-off. In the US, better-than-expected unemployment and third quarter GDP figures have supported equities higher and lent additional credence to the country’s recovery. Central banks worldwide remain accommodative, with the Bank of Japan (BoJ) and European Central Bank continuing to combat deflation while the People’s Bank of China also recently lowered interest rates to bolster flagging economic growth.

Final asset flow figures for October revealed that managers reported performance-based losses of US$1.6 billion while recording net asset outflows of US$12.2 billion. Preliminary data for November shows that managers have posted performance-based gains of US$19.6 billion while recording net outflows of US$7.4 billion, bringing the current AUM of the global hedge fund industry to a total of US$2.13 trillion – close to the record US$2.14 trillion reported last quarter.

Summary monthly asset flow data since January 2011