Business

Despite Lackluster Performance, US Hedge Funds Hit Record $2.1 Trillion In Assets

The January 2015 Eurekahedge Report has been released

  • The total AUM of the industry grew by US$125.9 billion in 2014 – well below the levels seen in 2013 when industry assets grew by US$240.4 billion.
  • Net asset inflows for the year stand at US$37.7 billion, less than a 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$38.1 billion.
  • Asia ex-Japan investing funds delivered the best returns globally and were up 9.36% for the year, outperforming the MSCI Asia ex Japan Index by almost 600 basis points.
  • CTA/managed futures funds reported performance-based gains of US$24.0 billion for the year – their highest annual gain since 2008, led by North American CTAs with year-to-date returns of 10.00%.
  • While the average hedge fund returned 4.46% in 2014 year-to-date, Eurekahedge data shows that the top 10, 50 and 100 best performing hedge funds gained 128.33%, 65.32% and 48.47% on average over the same period.

 

Performance update

 

Hedge funds rounded up the final month of 2014 in positive territory, up 0.14%[1], outperforming underlying markets as the MSCI World Index[2] lost 0.80%. Global equity markets largely traded sideways to end December in negative territory, fuelled by further steep falls in oil prices and fears of a global slowdown. Volatility also picked up in the final trading month of the year amid the atmosphere of uncertainty – reflected in the CBOE VIX Index which rose 44.04% to 19.2 during the month of December. Most of the salient macroeconomic themes from November maintained their relevance going into December; mainly the fall in oil prices and the impact of divergent central bank policies. Further falls in oil prices during the month continued to put heavy pressure on the heavily oil-dependent Russian economy and the rouble, prompting the Russian central bank to make a surprise drastic overnight interest hike to 17% to defend its currency. In its ongoing attempts to combat the risks of deflation through quantitative easing, the European Central Bank (ECB) recently clarified its intention to embark on large-scale asset purchases centered on government bonds in early 2015. Divergent central bank policies continued to widen the spread between US and European bond yields, causing the euro to depreciate further while the greenback has gone from strength to strength.

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Japan and Asia ex-Japan managers were the best performers during the month, returning 1.05% and 1.03% respectively. Chinese equities were a major winning theme during the month as the China CSI Index soared a further 25.81%, lifted by investor optimism as last month’s interest rates cuts by the People’s Bank of China and additional liquidity from the Shanghai-Hong Kong stock connect carried markets higher. North American funds were also up 0.55% as the economy expanded at a higher-than-expected annualised rate of 5.0% in the third quarter even while unemployment rates continue to fall. On the other hand, European funds slipped 0.15% in December as markets in the EU have struggled in the face of a near-zero growth outlook and declining demographics. Investor risk aversion reached a peak during the month as the political situation in Greece pointed towards the resurgent possibility of a Greek exit from the Eurozone, sending markets tumbling. Mangers investing with a Latin American mandate were the worst performers, losing 1.49% in the final month of the year, negatively impacted by the broad sell-off in commodities and local currencies as the MSCI Latin America Index[3] dropped 5.82%.

 

2014 on the whole has been a mixed bag – while the US economy continues to recover and post solid job gains, the Eurozone and Japan remain mired in their struggle against anaemic growth. Emerging economies have registered divergent prospects as well, while oil-exporting countries such as Russia are battered by the steep decline of oil prices, net energy consumers such as India are reaping the windfall of lower prices. On a year-to-date basis, Asia ex-Japan managers lead the table with returns of 9.36%, attributing much of their gains to exposure to Indian equities, which has risen 29.66%[4] since the start of the year.

Funds with a Japanese and North American mandate came in second and third place, delivering returns of 6.22% and 6.08% respectively. Latin America focused funds returned 2.34% while European managers came in last place at 0.90%.

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Mizuho-Eurekahedge Asset Weighted Index

 

The asset weighted Mizuho-Eurekahedge Index slid down 0.47% in December. The top 100 constituents performed better than their smaller counterparts, losing only 0.27%. 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 another 2.17% in December, based on the US dollar Index.

 

The asset weighted Mizuho-Eurekahedge Emerging Markets Hedge Fund Index lost another 3.37% in December, reporting its fourth straight month of losses plunging returns for the year into negative territory. Many emerging markets mandates suffered losses as declining commodity prices, diminishing growth rates and currency depreciations, caused the MSCI Emerging Markets Index[5] to fall 4.58%. On the other hand, the Mizuho-Eurekahedge Asia Pacific Hedge Fund Index has gained 5.56% for the year, the largest return out of all regional mandates attributing gains to India and Greater China.

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Hedge funds finished 2014 up 4.46%, with the Eurekahedge Hedge Fund Index gaining another 0.14%[6], outperforming underlying markets as the MSCI World Index[7] fell 0.80% in December after equities retreated from their intra-month heights. Further steep falls in oil prices and fears of a global slowdown contributed to an atmosphere of uncertainty, which caused volatility to pick up in the final trading month of the year as the market traded in a choppy sideways manner. Nevertheless, better-than-expected US unemployment figures and growth figures lent additional credence to the country’s recovery and managed to support equities higher during the month despite closing lower.

 

Final asset flow figures for November states that managers reported performance-based gains of US$25.6 billion while recording net asset outflows of US$3.8 billion. Preliminary data for December shows managers posting performance-based gains of US$5.7 billion while recording net outflows of US$6.7 billion, bringing the current assets under management (AUM) of the global hedge fund industry to a total of US$2.14 trillion.

Hedge Funds
Hedge Funds

 

[1] MSCI AC Asia Pacific ex Japan Index (Local)

[1] Based on 52.46% of funds which have reported December 2014 returns as at 15 January 2015

[1] MSCI AC World Index(Local)

[1] MSCI EM Latin America Index IMI (Local)

[1] BSE SENSEX

 

[1] Based on 52.46% of funds which have reported December 2014 returns as at 15 January 2015

[2] MSCI AC World Index(Local)

[3] MSCI EM Latin America Index IMI (Local)

[4] BSE SENSEX

[5] MSCI Emerging Markets Index IMI (USD)

[6] Based on 52.46% of funds which have reported December 2014 returns as at 15 January 2015

[7] MSCI AC World Index (Local)