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The Eurekahedge Hedge Fund Index declined 1.01%¹ in December, supported by the robust performance of the global equity market as represented by the MSCI ACWI (Local) which returned 3.55% over the same period. The emergence of the highly contagious Omicron variant in late November negatively impacted risk sentiment in the first half of December as global COVID cases surged to unprecedented levels. Preliminary studies have found that Omicron cases double every two to four days, shorter than the time taken for the Delta variant to double, which led to concerns that this would force governments to reimpose movement restrictions to curtail the spread of the virus. Compounding matters further, the Federal Reserve announced that it will double the pace of its tapering of quantitative easing to $30 billion per month, beginning in January and conclude the asset purchase program in March 2022, three months earlier than originally planned. This led to considerable uncertainty among market participants as they feared that the negative effects of the reimposition of COVID movement restrictions combined with hawkish central bank policies would derail the momentum of the global economic recovery.

Risk sentiment improved over the second half of December after early research by scientists found that those infected with Omicron were almost 60% less likely to be hospitalised than people infected with Delta. In addition, the efficacy of existing COVID-19 vaccines against Omicron can be further improved with a booster shot, leading to optimism that the Omicron wave would not be as devastating as the previous Delta wave. This boost to sentiment provided strong support to US equities, with the DJIA and S&P500 posting gains of 5.38% and 4.36% in December respectively. Over in Europe, returns were positive among equity benchmarks in the region with the CAC 40 and Euro Stoxx 50 taking the lead with returns of 6.43% and 5.79% respectively. Despite the reimposition of restrictions in some countries to protect their healthcare systems from being overwhelmed, investors remain optimistic that the global economy remains on track to grow at an above trend rate over the course of 2022.

Returns were positive across geographic mandates in December, with the Japanese and North American mandates performing the best with returns of 2.07% and 1.79% respectively while the Latin American and Asia ex-Japan mandates lagged their regional peers with returns of 0.95% and 0.63% respectively. Across strategies, the long/short equities and macro mandates performed the best with returns of 1.57% and 1.47% respectively while the arbitrage and distressed debt mandates lagged their peers with returns of 0.47% and 0.14% respectively.

Final asset flow figures for November showed that hedge fund managers recorded performance-based losses totalling US$21.0 billion on top of net investor outflows of US$9.6 billion throughout the month. Preliminary data for December estimates that the global hedge fund industry witnessed US$12.5 billion of performance-driven gains combined with US$11.9 billion of net investor inflows. The assets under management (AUM) of the global hedge fund industry stood at US$2437.2 billion as of December 2021. The global hedge funds industry has seen US$102.1 billion of performance-based gains and US$86.6 billion of investor allocations throughout in 2021.

Figure 1a: Summary monthly asset flow data since January 2013
 

Key highlights for December 2021:

• Hedge fund managers reversed losses in November and gained 1.01% in December, bringing their 2021 return to 9.49% - the second best annual performance since 2010. Hedge funds were supported by the robust performance of the global equity market as represented by the MSCI ACWI (Local) which returned 3.55% over the month. Around 75.8% of the constituents of the Eurekahedge Hedge Fund Index generated positive returns in 2021.

• On an asset-weighted basis, hedge funds gained 1.86% in December, as captured by the Eurekahedge Asset Weighted Index – USD.In terms of 2021 performance, the index is only up 4.29%, highlighting the struggles for some of the larger asset managers over the year.

• The Eurekahedge North American Hedge Fund Index gained 1.79% in December, supported by the robust performance of the DJIA and S&P 500 which gained 5.38% and 4.36% respectively over the month. In terms of 2021 performance, North American fund managers were up 14.46%, posting their second consecutive year of double-digit returns.

• The Eurekahedge European Hedge Fund Index gained 1.62% in December, supported by the robust performance of the pan-European Euro Stoxx 50 which gained 5.79% over the month. Investors brushed aside concerns over the surge in Omicron cases as evidence suggests the Omicron variant leads to lower rates of hospitalisation and death. In terms of 2021 performance, European fund managers were up 8.43%, posting their best annual performance since 2013.

• The Eurekahedge Asia ex Japan Hedge Fund Index was up 0.63% in December, bringing its 2021 performance to 7.27%. In contrast to their strong performance in 2020 when they outperformed their European and North American peers by 18.48% and 6.42% respectively, Asia ex-Japan hedge funds have underperformed their developed market peers in 2021 as Greater China hedge funds who were the primary index performance driver in 2020 failed to sustain their strong returns in 2021 as reflected in their -0.03% loss for the year.

• The Eurekahedge Long Bias Hedge Fund Index gained 2.57% in December, rebounding strongly from a -2.35% loss suffered in the previous month. In terms of 2021 performance, long bias fund managers were up 12.96%, posting their third consecutive year of double-digit returns.

• The Eurekahedge Long Short Equities Hedge Fund Index gained 1.57% in December, rebounding strongly from a -1.55% loss suffered in the previous month. In terms of 2021 performance, long/short equities fund managers were up 10.80%, posting their third consecutive year of double-digit returns.

• The CBOE Eurekahedge Long Volatility Hedge Fund Index gained 1.57% in December, rebounding strongly from a -1.55% loss suffered in the previous month. In terms of 2021 performance, long/short equities fund managers were up 10.80%, posting their third consecutive year of double-digit returns.

• The CBOE Eurekahedge Short Volatility Hedge Fund Index gained 1.57% in December, rebounding strongly from a -1.55% loss suffered in the previous month. In terms of 2021 performance, long/short equities fund managers were up 10.80%, posting their third consecutive year of double-digit returns.

• The Eurekahedge CTA/Managed Futures Hedge Fund Index gained 0.57% in December, supported by the strong returns of the S&P GSCI Index which gained 7.59% over the month. Improving crude demand and dwindling US crude inventories allowed oil to recover some of their November losses as the prices of Brent crude oil and West Texas intermediate crude oil surged 10.11% and 12.09% respectively. In terms of 2021 performance, CTA/managed futures hedge funds were up 6.66%, marking their third consecutive year of positive returns above 5.00%.

• The Eurekahedge Distressed Debt Hedge Fund Index eked out a gain of 0.14% in December, extending their 2021 return to 13.14% which marks their highest annual return since 2016. Distressed debt fund managers have managed to post positive returns during eleven months of 2021, with their only monthly loss of 2021 in November when they posted a loss of -1.06%.

• Fund managers focusing on cryptocurrencies declined -14.93% in December as tracked by the Eurekahedge Crypto-Currency Hedge Fund Index, outperforming Bitcoin which fell -18.51% over the same period. In terms of 2021 return, cryptocurrency hedge funds have gained 133.78%, outperforming Bitcoin which returned 63.82%.

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