The Eurekahedge Hedge Fund Index was up 0.54%1 in January 2021, outperforming the global equity market as represented by the MSCI ACWI2 which gained 0.11% over the same period. Global equities went on a roller coaster ride this month as their gains in the first three weeks were erased in the final week of the month due to market turbulence caused by the retail trading mania. In the US, Democratic Party candidates Jon Ossoff and Raphael Warnock defeated their Republican opponents in two runoff elections in Georgia, granting the Democrats control of the House, Senate and White House for the first time since 2011. This led to increased optimism that the Democrats would be able to push President Biden’s proposal for a US$1.9 trillion coronavirus relief package through the Senate without Republican support. However, market risk sentiment rapidly deteriorated as retail investors and notable hedge funds clashed over GameStop stock, negatively affecting investors’ confidence in the stability of the market. A group of retail investors in a trading community collectively bought GameStop shares which pushed its price to an extreme level. The massive buying squeezed the position of a notable hedge fund that bet against the company, resulting in them losing more than half of their assets under management (AUM). This incident forced brokers to place trading restrictions on the stock. The US equity benchmark erased the gains they generated in the earlier part of January, with the DJIA and S&P 500 losing 2.04% and 1.11% respectively. Over in Europe, most of the equity benchmarks in the region were in negative territory, with the CAC 40 and DAX down 2.74% and 2.08% respectively. Returns were mixed across geographic mandates in January, with Asia ex-Japan and North American hedge funds gaining 2.26% and 0.69% respectively, while European hedge funds were down 0.23%. Across strategies, event driven, long/short equities and arbitrage fund managers were up 1.65%, 0.95%, and 0.74% respectively throughout the month.
Final asset flow figures for December showed that hedge fund managers recorded performance-based gains totalling US$53.2 billion and net investor allocations of US$0.2 billion throughout the month. Preliminary data for January estimates that the global hedge fund industry witnessed US$19.9 billion of performance-driven losses combined with US$4.7 billion of net investor outflows. The assets under management of the global hedge fund industry stood at US$2224.0 billion as of January 2021. The global hedge funds industry has seen US$37.4 billion of performance-based gains and US$91.5 billion of investor redemptions in 2020.
Figure 1a: Summary monthly asset flow data since January 2013
Key highlights for January 2021:
- Hedge fund managers were up 0.54% in January – outperforming the global equity market as represented by MSCI ACWI which gained 0.43% during the month. The top 10% of global hedge funds generated an average return of 4.72% during the month, while 56.0% of total constituents have outperformed the broader equity market. In terms of annual return, 2020 was a notable year for the industry as they recorded 12.11% - their best annual performance in over a decade, despite having their worst start in the early part of the year.
- Final assets under management for the global hedge funds declined by US$54.1 billion throughout 2020, driven by US$37.4 billion of performance-based growth, heavily offset by US$91.5 billion of net investor redemptions. The industry has managed to recover from its largest performance-based decline of US$178.2 billion suffered in Q1 2020 as they racked up an accumulated performance-based growth of US$215.6 billion over the last three quarters of 2020. On the other hand, net investor flows ended the year in red as global hedge funds accumulated total net outflows of US$5.6 billion over the last nine months which added to their recorded net outflows of US$85.9 billion reported over the first three months.
- The market breakdown in the early part of the year resulted in global hedge funds recording 910 closures in 2020 – the highest annual numbers since 2012. The industry logged 318 closures in Q1 2020 compared to 438 in Q4 2008. On the other hand, the global hedge fund industry witnessed 538 launches throughout the year, which was the lowest level since 2000.
- The Eurekahedge Long Short Equities Hedge Fund Index was up 0.95% in January, outperforming the S&P 500 by 2.05% during the month. In terms of yearly return, the mandate recorded their third double-digit annual return over the last four years, with their 13.25%, 11.86% and 17.70% return in 2017, 2018 and 2020 respectively. In the same year, long/short equities funds also consistently outperformed their major strategic peers, supported by the strong performance of the global equity market.
- The Eurekahedge Greater China Hedge Fund Index was up 4.02% in January, outperforming the Shenzhen and Shanghai Composite by 3.78% and 3.73% respectively. In terms of annual return, the Greater China mandate had an exceptional performance in 2020 as they gained 35.48%, with the top 10% of hedge fund gaining an average return of 80.54%. In the same vein, the assets under management of the Greater China mandate grew to US$89.7 billion from US$67.8 billion since end-2019 – recording the best AUM growth of 32.3% since inception.
- Structured credit hedge funds were up 1.88% in January, outperforming its distressed debt and fixed income peers who returned 0.41% and 0.38% respectively. In terms of 2020 return, structured credit hedge funds underperformed their other credit-focused peers with a 3.06% loss. The mandate recorded an accumulated return of 24.46% over the last three quarters of 2020 but was still insufficient to offset the 22.11% losses suffered in the first quarter of the year.
- Hedge funds focusing on cryptocurrencies started the year strong, with their 31.50% return in January. Cryptocurrency fund managers also recorded their best four-month run since 2017 as they gained an accumulated return of 141.40% since end-September. In terms of annual return, cryptocurrencies hedge funds recorded their third-best yearly return of 198.37% in 2020, behind their 1,708.50% and 905.78% gain in 2017 and 2013 respectively.
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