Hedge fund AUM Expands at weakest pace since 2009

Sheeraz Raza
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Hedge fund AUM Expands at weakest pace since 2009
Hedge fund Assets Under Management

Hedge fund Assets Under Management expands at weakest pace since 2009 but managers post 7th straight month of gains

Hedge funds were up 0.50%1 during the month of September, outperforming underlying markets as represented by the MSCI AC World Index (Local) which gained 0.19% over the same period. Close to 63% of underlying constituent funds for the Eurekahedge Hedge Fund Index were in positive territory this month, with majority of them being long/short equity mandated. Japan hedge funds led performance among regional mandates this month, up 1.35% while distressed debt managers topped the table across strategies, gaining 1.07% over the same period.

As of 2016 year-to-date, hedge funds are up 3.35% with close to 15% of managers posting double digit returns compared to 14% of managers over the same period in 2015. Roughly 38% of managers posting returns in excess of 10% in 2016 year-to-date are long/short equity mandated while another 19% are CTA/managed futures mandated.

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Hedge fund Assets Under Management – Below are the key highlights for the month of September 2016:

  • Hedge funds gained 0.50% during the month and are up 3.35% year-to-date. The US$2.26 trillion hedge fund industry grew by US$17.6 billion year-to-date, down from a US$93.4 billion growth over the same period in 2015. Fund liquidations outpaced new launches globally with a total of 548 closures for 500 launches as of 2016 year-to-date.
  • Event driven hedge funds were up 0.54% during the month, and up 6.81% year-to-date as positions in M&A deals within the F&B, pharmaceuticals and technology sector lead performance. Roughly 18% of actively-reporting event driven hedge funds posted double digit returns as of 2016 year-to-date.
  • On a year-to-date basis, North American hedge fund managers were up 5.40% while their European and Japanese counterparts were in the red ??down 0.46% and 2.93% respectively.
  • The Eurekahedge Distressed Debt Hedge Fund Index posted the best returns among strategic mandates in September and was up 1.07% during the month. Managers also posted impressive year-to-date gains, up 8.66% – the best year-to-date returns for the strategy on record.
  • Latin American long/short equities hedge funds posted the best year-to-date gains, up 20.42% while Japanese long/short equities hedge funds fared the worst, losing 2.98% over the year.
  • Asia ex-Japan hedge fund managers gained 0.53% during the month, with strength being led by underlying Greater China and India mandated hedge funds which were up 0.73% and 1.82% respectively over the same period.

Hedge fund Assets Under Management- Regional Indices

All regional mandates were positive in September with Japan managers leading performance among regional mandates, up 1.35% despite the Nikkei 225 and Tokyo Topix ending the month down 2.59% and 0.51% respectively. Japanese equity markets traded higher at the start of the month as better US jobs data led to some weakness in the yen. However, Japanese markets declined as the Fed postponed the much anticipated rate hike and together with the concerns over the Deutsche Bank saga, yen was driven higher towards month-end. Across sectors, Japan managers gained on exposure into energy and consumer discretionary while financial stocks led weakness. North American hedge funds gained 0.91%, beating the S&P 500 Index which declined 0.12% during the month as a series of events from the US Presidential Debate and banking woes from Europe led to investor jitters. Latin American hedge funds were also up this month, gaining 0.77%, outperforming the MSCI Latin America Index IMI (Local) which declined 0.30%. Emerging markets mandated hedge funds gained 0.62% in September, buoyed by support from oil price recovery resulting from encouraging outcome of the recent OPEC meeting. Lacklustre performance of underlying Asian markets did not deter Asia ex-Japan managers from posting gains of 0.53% during the month, beating the MSCI Asia ex-Japan Index (Local) which fell 0.59% over the same period. On a year-to-date basis, Latin American hedge funds led the table, gaining 17.15% over the past nine months with performance held up by the region?? well-performing equity markets. Brazil?? Ibovespa Index gained 34.64% year-to-date, allowing managers to profit from their long books throughout the past nine months. Broader emerging market mandated hedge funds also posted impressive year-to-date gains, up 7.68% with performance supported by recovering oil prices and the intermittent weakness of the USD vis- C?-vis commodity currencies propping performance of underlying emerging markets commodities. North American managers were also up year-to-date, gaining 5.40% followed by Asia ex-Japan managers which posted gains of 2.39%. On the other hand, European and Japanese managers were down 0.46% and 2.93% year-to-date respectively.

Hedge fund Assets Under Management
Hedge fund Assets Under Management
Hedge fund Assets Under Management- – Strategy Indices Performance was mixed across strategic mandates, with macro mandated hedge funds being the only strategic mandate to post negative returns during the month. Macro mandated hedge funds lost 0.50% in September with funds positioned for central bank announcements and OPEC inaction seeing some losses. On the other hand, distressed debt hedge funds led performance across strategic mandates with gains of 1.07% during the month as recovering oil prices and some M&A activity within the energy sector propped up valuations of underlying assets. As a result, distressed debt managers were able to reap returns from the previous purchase of troubled assets during the downtrend in oil prices. Long/short equities hedge fund managers gained 0.73% in September with underlying equity long bias hedge funds up 0.71%, despite lacklustre performance of global equity markets.
[drizzle]Relative value hedge fund managers gained 0.72% during the month with performance supported by underlying opportunistic volatility strategies, represented by the CBOE Eurekahedge Relative Value Volatility Hedge Fund Index, which gained 0.78% over the same period. While volatility levels were subdued towards the end of the month, the VIX Index traded higher particularly in the middle of the month, before declining in the final week of September. Arbitrage managers gained 0.58%, followed by event driven hedge fund managers which were up 0.54% as exposure into M&A deals within F&B, pharmaceuticals and technology industries among performance drivers. Multi-strategy and CTA/managed futures hedge funds were also up in September gaining 0.47% and 0.33% respectively during the month. The performance of CTA/managed futures managers was led by exposure into long energy, commodities and short GBP/USD positions with underlying commodity hedge funds, represented by the Eurekahedge Commodity Hedge Fund Index gaining 0.51% while trend following hedge funds, also a sub-set of the broad CTA index, declined 1.14% during the month.

On a year-to-date basis, distressed debt hedge funds lead the table, up 8.66% followed by event driven and relative value hedge funds which gained 6.81% and 6.21% respectively as M&A activity and current price dislocations of underlying assets present ample opportunities for managers. Given that the oil recovery remain sustainable towards Q4 2016, distressed debt hedge funds could be on track as the best performing hedge fund strategy this year.

Hedge fund Assets Under Management- hedge-fund-assets-under-management-6
Hedge fund Assets Under Management-

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1 Based on 37.83% of funds which have reported September 2016 returns as at 11 October 2016

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