Hedge fund industry AuM declined for the fourth consecutive month in July, falling $15.6bn, which extended the YTD decline to $123.7bn. The hedge fund industry did record performance-based gains of $3.1bn in July, supported by the rebound in global equity markets as the S&P 500 surged by 9.2%, but was unable to stem outflows ($18.8bn) as the likelihood of a global recession rose.
The Eurekahedge Hedge Fund Index gained 1.3% in July, recording its highest monthly return since April 2021 after three consecutive months of decline, totaling 4.1% in Q2. The recovery was bolstered by the revival of the global equity market, reflected in the 9.1% rebound of the S&P 500. The Federal Reserve raised interest rates by another 75bps in July to combat persistent high inflation, which accelerated to 9.1% in June 2022, the highest since November 1981. However, a slower pace of rises is likely in the mid-term as US GDP contracted 0.9% in Q2, following a 1.6% contraction in Q1, putting the country into a recession.
The first eight months of 2022 have been
characterized by a turbulent market
environment, with the technology stock-driven
bull market upended by central bank
tightening, an inflation crisis, supply chain
slowdowns, Russia's invasion of Ukraine and
fears for the global economy. Against this
backdrop, the average long/short equity hedge
fund declined 7.9%, widely considered a
disappointing return, but superior to the 13.3%
fall in the S&P 500 Index, which entered a bear
market for the first time since its sudden dive
in March 2020. Despite a summer rally, few are
expecting a sustained recovery in stock market
performance, amid fears of a global downturn
brought on by inflation-busting rate hikes,
providing an opportunity for long/short
managers to improve in a more subdued and
less volatile market setting
The 2008 global financial crisis saw long-only absolute return funds lose $84bn in AuM. Since then, the industry has experienced steady growth, hitting a peak of $293bn in 2017. This works out to a compound annual growth rate of 11.9% over the 9-year period. The positive trend reversed in 2018 as the sector recorded $33.5bn of AuM decline, largely driven by $20.6bn of net outflows as investor risk sentiment was dampened due to the poor performance, as shown by the Eurekahedge Long-Only Absolute Return Fund Index recording losses of 10.4% in 2018.