Hedge Fund AUM Hits Another Record High In Q1 2014

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Hedge funds up 0.87% in Q1 2014, with fund managers delivering performance-based gains of US$21 billion and recording net asset inflows of US$38 billion over this period – bringing the current AUM of the global hedge fund industry to US$2.07 trillion, a new record high.

The Eurekahedge North America Hedge Fund Index was up 2.25% in the first quarter of 2014, outperforming the S&P 500 (INDEXSP:.INX) index which gained 1.30% over this period.

Long/short equities funds record their 16th consecutive month of positive net asset flows, with net capital allocations to the strategy for Q1 2014 at US$38.5 billion and total assets in long/short equities hedge funds standing at US$704.6 billion – nearing close to their historical high of US$756 billion reached in December 2007.

Distressed debt hedge funds have managed to stay in the black for the past nine months, with the highest quarterly return among all strategic mandates at 2.76%.

Total assets in North American hedge funds reached a new high of US$1.39 trillion with assets growing by US$33.2 billion in the first quarter of the year on account of strong performance-based gains and capital allocations in the month of February.

Total assets in European hedge funds now stand at U$476.2 billion, surpassing their historical high of US$473 billion reached in October 2007. Assets under management have grown by US$21.8 billion in the first quarter of 2014 as the region recorded its 16th consecutive month of positive asset inflows.

Investors continued to jump ship from CTA/managed futures hedge funds which posted their 10th consecutive month of net asset outflows in March, and have seen redemptions worth US$5.3 billion in the first quarter of the year.

Japan investing hedge funds recorded their third consecutive month of negative returns, down 1.91% in the first quarter though managers have outperformed the Tokyo Topix by almost 6% over this period.

Hedge funds performance update

Hedge funds hit another rough patch as the first quarter of 2014 drew to a close, giving back part of their February gains to finish the month down 0.35% with the MSCI World Index returning a flat 0.04% during the month. Global markets remained largely flat-to-negative during the month as better than expected US jobs data and the reduction of the Fed’s monthly asset purchase program by another US$10 billion heightened concerns that US interest rates could rise faster than previously anticipated. Investor sentiment improved towards the month-end as Fed chairperson Janet Yellen shifted the focus of her ‘forward guidance’ away from an unemployment target towards a more qualitative improvement in the US labour market – a move that will give the Fed more flexibility to influence rates until a sound economic recovery is ensured. Meanwhile, European markets trended downwards as fears over disinflation resurfaced in the Eurozone, while in Asia, markets declined on news of disappointing PMI data from China and an impending sales tax hike in Japan. Emerging economies continued to show signs of stability with the MSCI Emerging Market Index advancing 1.69% during the month as major emerging market currencies stabilized.

Hedge funds focused on the Americas ended the month in positive territory, led by Latin American funds which were up 1.44%, but underperforming the MSCI Latin America Index which gained 5.56% during the month. North American managers were the only other regional mandate in positive territory, returning 0.23% as the MSCI North America Index climbed 0.38%. European funds suffered losses of 0.25%, while Asia ex-Japan funds were down 1.16%, attributing much of their losses to funds with a Greater China mandate. Funds investing in Greater China lost 3.42%, underperforming the CSI 300 Index which declined 1.50% in March. China continued to post disappointing economic data during the month, indicating that February’s weakness was not merely an aberration caused by the Chinese New Year. Japanese funds posted their third month of losses, affected by weakness in underlying markets as the Tokyo Topix fell 0.72%.

On a quarterly basis, North American and European focused hedge funds lead the table with returns of 2.25% and 1.72% while funds with a Japanese mandate were down 1.91%. Markets in the developed world, barring Japan, have posted some of the best returns since the start of this year, which accounts for the healthy returns posted by North America and European hedge funds in the first quarter of the year. Asia ex-Japan managers were unable to hold onto their February earnings and returned most of their profits this month, gaining only 0.14%. On the other hand, Latin American funds have almost recovered from the drubbing they suffered in January, bringing their losses for the quarter down to 0.08%.

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Mizuho-Eurekahedge Asset Weighted Index

The asset weighted Mizuho-Eurekahedge Index was down 0.02% in March as some of the larger index constituents outperformed during the month. 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.

Index constituents focused on emerging markets posted the largest gain as the asset weighted Mizuho-Eurekahedge Emerging Markets Hedge Fund Index gained 2.82% during the month. Emerging markets such as Indonesia, Turkey and India enjoyed a broad based rally in March as markets responded positively to government measures to stave off possible contractions in the economy.

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Asset flows update

Hedge funds sealed the first quarter of the year with another month of negative returns, down 0.35%in March as managers navigated through a choppy start to the year. However, strong returns posted by fund managers in the previous month saw them through with the Eurekahedge Hedge Fund Index up 0.87% in Q1 2014, outperforming the MSCI World Index which has gained 0.67% over the same period.

Final asset flow figures for February revealed that managers realised performance-based gains of US$26.8 billion while recording net asset inflows of US$31.4 billion as hedge funds continued to attract strong capital allocations from investors. Preliminary data for March shows that managers have posted performance-based losses of US$0.97 billion while net asset inflows for the month stand at US$8.09 billion, bringing the current AUM of the industry to US$2.07 trillion – the highest level on record.

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