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2018 Key Trends in Global Hedge Funds

Introduction

The Eurekahedge Hedge Fund Index gained 0.02% as of June 2018 year-to-date, showing its worst 1H performance since 1999. The global economy is at risk due to the escalating tension of trade war between the US and China, which started in January 2018 when the US president Donald Trump imposed a tariff on imported solar panels and washing machines. The tension arose when president Trump imposed further tariffs on US$50 billion’s worth of Chinese goods and threatened to implement the same tariffs on an additional US$200 billion of goods imported from the world’s second largest economy. According to the International Monetary Fund chief economist Maurice Obstfeld, the ongoing trade war is a near-term threat to global growth.

Aside from the trade conflict between the US and China, the global economy is under inflationary pressure and witnessed interest rate hikes from various central banks around the world. The US Federal Reserve is on track to continue its tight monetary policy and has implemented five rate hikes since last year, with two more expected later this year. The Fed tightened their policy due to the implication of tax cuts introduced last year, which contributed to the robust growth of the US economy and sent its inflation rate accelerating to the two percent target level. On a global level, inflation was driven by the increasing prices of oil in the market, owing to the ongoing political crisis in Venezuela, the war in Syria, and sanctions imposed by the United States on Iran, which curtailed oil production from these countries. Apart from the Fed, the Bank of Canada and Bank of England are also expected to hike rates this year, despite the pressure of Brexit negotiation uncertainties on the United Kingdom’s economy. Meanwhile, the European Central Bank decided to leave its interest rate unchanged to maintain cheap credit and quantitative easing until the end of this year. The Eurozone experienced several predicaments this year, including the German coalition struggle and political crises in Italy and Spain.

Figure 1: Global hedge fund industry map
 Global hedge fund industry map

The industry’s total assets under management (AUM) grew by US$8.8 billion during the year, thanks to the continuation of last year’s strong investor inflows. However, the second quarter of 2018 saw investor redemptions totalling US$22.2 billion as investors fled to safer asset due to the escalation of the trade friction across the globe. The industry also saw performance-based losses of US$5.9 billion and US$2.7 billion over the first and second quarters of the year respectively.

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