Hedge Funds Are Down 1.27% YTD As Of February 2016; Heavy OutflowsVW Staff
Hedge Funds Are Down 1.27% YTD As Of February 2016 by Eurekahedge
The Eurekahedge Hedge Fund Index gained 0.36% in February1 while underlying markets as represented by the MSCI World Index2 declined 1.43% over the same period. Among regional mandates, Japanese managers posted the steepest loss down 3.83% during the month followed by Asia ex-Japan hedge funds which saw losses of 1.78%. Across strategies, CTA/managed futures hedge funds led the table with gains of 2.62% propped up by exposure into safe haven assets such as gold and the Bund.
Final asset flow figures for January revealed that managers reported performance-based losses of US$11.9 billion while recording net asset outflows of US$9.2 billion. Preliminary data for February shows that managers have posted performance-based losses of US$4.7 billion while recording net inflows of US$5.6 billion, bringing the current assets under management (AUM) of the global hedge fund industry to a total of US$2.22 trillion.
Hedge Funds – Key Highlights For February 2016:
- Hedge funds are down 1.27% as of February 2016 year-to-date with total AUM declining by US$20.1 billion. Almost 65% of fund managers are in the red for the year in what is turning out to be a tough start to the year for fund managers.
- Asia ex-Japan managers were in the red for their second consecutive month – down 1.78%, bringing their 2016 year-to-date returns down 6.84% which is their worst start to the year on record. Weaknesses were led by Greater China and India dedicated mandates which are down 8.54% and 9.15% respectively year-to-date
- Latin America is the only region to post positive year-to-date gains, up 1.90% as the brief rally in oil and commodities propped up the region’s performance especially in February. Latin American hedge fund managers also led the tables during the month, up 2.14%.
- On a year-to-date basis, CTA/managed futures hedge funds are in the lead with gains of 4.29% while long/short equities hedge funds posted the steepest decline, down 4.08% over the same period. This compares to losses of 1.05% for CTA/managed futures hedge funds and gains of 2.94% for long/short equities hedge funds respectively in 2015.
- European managers posted their third consecutive month of losses, down 3.28% since December, translating into performance-based losses of US$8.2 billion for managers. Investor flows over the last 12 months stand at US$41.5 billion.
- Strong investor inflows were recorded over the past year for the US$1.48 trillion North American hedge funds industry – investor allocations for 2015 were twice the level of inflows seen in the year before. For more details, please refer to the ‘2015 Overview: Key Trends in North American Hedge Funds’ report.
Figure 1b shows the share by performance-based growth/decline and net investor flows for the global hedge fund industry since 2006. During the pre-financial crisis period, the share of performance-based growth and investor inflows was almost evenly split with total asset growth coming in at US$343.4 billion. During the financial crisis in 2008, investor outflows accounted for over half of the total loss of capital for the global hedge fund industry as investors grew nervous over the prospect of their investments. While AUM did recover in the following year, investor sentiment was chronically pessimistic, and the global hedge fund industry witnessed further redemptions of US$122.9 billion in 2009 – largely in the first half of the year as redemption calls from late-2008 came into effect.
The years following the financial crisis saw accommodative central bank policies largely on the back of asset purchases and low interest rates, setting the momentum for an economic recovery. Investor sentiment improved with positive investor inflows in 2010 and 2011 but the height of the Eurozone crisis witnessed further redemptions in 2012 which were less severe than those in the post-global financial crisis period. In 2013, hedge funds recorded the strongest growth in their AUM since 2007 with assets increasing by US$240.4 billion during the year on the back of strong performance-based gains and investor inflows. This happened against the backdrop of a global equity market rally and a recovery in the US economy that saw investors scale up their allocations to hedge funds. While the Greek and Ukrainian crisis contributed to some investor nervousness in 2014, investor inflows remained positive with modest performance-driven gains resulting in the industry’s asset growing by half the levels seen in 2013. As of February 2016 year-to-date, performance-based losses of US$16.6 billion were recorded while investor inflows stood at US$3.5 billion over the same period of time.
North American funds recorded net asset outflows of US$4.1 billion while posting performance-based gains of US$1.7 billion during the month of February. Net asset outflows to the region since the start of the year stand at US$2.7 billion, while managers have posted performance-based losses of US$6.7 billion over this time period. Total assets in North American hedge funds currently stand at US$1.47 trillion as of 2016 year-to-date.
European fund managers recorded net inflows of US$1.3 billion, while registering performance-based losses of US$2.4 billion during the month. Total assets in European hedge funds stand at US$529.1 billion as of 2016 year-to-date, down from their December 2015 high of US$ 535.1 billion. On a year-to-date basis, European hedge fund managers have seen performance-driven losses of US$ 6.0 billion while net flows were flat.
Asian funds saw inflows of US$0.3 billion in February with Asia ex-Japan funds posting performance-based losses of US$0.5 billion. Asset inflows of US$0.1 billion were recorded into Japan mandated funds while performance-based losses stood at US$0.1 billion. On a year-to-date basis, Japanese managers have seen performance-based losses of US$0.2 billion while US$3.5 billion of performance-based losses were recorded for Asia ex-Japan managers.
Figure 4 gives a breakdown of performance-based gains and net flows for the hedge fund industry by various strategies for the month of February. Asset flows were mixed across the various hedge fund strategies, with CTA/managed futures and long/short equity mandated hedge funds seeing the most inflows of US$1.7 billion and US$1.8 billion respectively. Macro and relative value strategies saw inflows of US$0.8 billion each, while event-driven, arbitrage and multi-strategy hedge funds saw inflows of US$0.6 billion, US$0.3 billion and US$0.1 billion respectively. On the other hand, fixed income mandated hedge funds saw outflows of US$0.5 billion during the month. On a 2016 year-to-date basis, long/short equities hedge funds recorded the most inflows (US$12.3 billion) followed by relative value and CTA/managed futures hedge funds with inflows of US$0.5 billion and US$0.6 billion respectively. Volatility arbitrage hedge funds within the relative value space saw good inflows in February, which should not come as a surprise given the strategy was up 4.47% in 2015, posting good risk-adjusted returns as tracked by the CBOEEurekahedge Relative Value Volatility Index.
Performance figures were also mixed for all strategic mandates this month with multi-strategy mandated hedge funds posting the steepest performance-based loss of US$5.9 billion, with the asset-weighted Mizuho-Eurekahedge Multi-Strategy Hedge Fund Index (USD) declining 2.01% during the month. CTA/managed futures hedge funds had a good month, posting performance-based gains of US$2.8 billion as exposure into gold and sovereign bonds especially the Bund was a winning theme for some CTA/managed futures managers as investors flocked into traditional safe haven assets. On a year-to-date basis, CTA/managed futures hedge funds saw inflows of US$0.5 billion while posting excellent performance-based gains of US$6.8 billion. Long/short equities hedge funds saw performance-based losses of US$12.1 billion while investor inflows for the strategy were recorded at US$12.3 billion over the same period. As of 2016 year-to-date, long/short equities mandated hedge funds manage US$794.5 billion – the largest share of AUM among all strategic mandates, with a large number of mid-to-large sized funds providing adequate scale for investors looking to hedge their equity exposure. Over the past year, the Eurekahedge Long/Short Equities Hedge Fund Index returned 2.94%, outperforming the S&P 500 index which declined 0.73% in 2015.
Over the 38 month period depicted in Figures 6 and 7, the global hedge fund industry has raked in performance-based gains of US$200.4 billion, with billion dollar hedge funds accounting for over half of these gains – delivering cumulative performance-based gains of US$115.4 billion since the start of 2013. Funds managing assets in the US$100 million to US$500 million range have seen performance-based gains of US$47.8 billion while those managing assets below US$100 million have delivered gains of US$8.2 billion over the period under consideration.
A similar picture emerges based on net asset flows, with the global hedge fund industry attracting US$249.6 billion since January 2013, out of which billion dollar hedge funds accounted for US$179.3 billion of these net capital allocations, while funds with assets under US$500 million collectively recorded net asset inflows of US$0.85 billion over this period.
Funds less than US$500 million collectively saw US$62.1 billion in performance-driven gains and US$0.50 billion in investor inflows in 2015, which compares to US$32.4 billion in performance-driven gains and US$67.7 billion in investor inflows for funds managing between US$500 million to less than US$1 billion. This also compares to US$122.5 billion in performance-driven gains and US$184.9 billion in investor inflows for funds managing upwards of US$1 billion over the same period. When compared to 2014, we noticed that billion dollar hedge funds are more successful at capital-raising with more than half of the assets raised contributed to investor inflows.
Over the past three months, net flows into funds within the US$100 million to US$500 million bracket surpassed the amount allocated into billion dollar funds. Funds managing assets within US$100 million to US$500 million saw inflows of US$3.5 billion over the past three months, surpassing the amount allocated into billion dollar hedge funds (US$2.8 billion) over the same time period. In terms of performance-based gains and losses, billion dollar hedge funds also saw the steepest decline, with performance-driven losses of US$16.2 billion while funds managing US$100 million to US$500 million saw performance-based decline of US$7.7 billion over the three months ending February.
- Based on 44.41% of funds which have reported February 2016 returns as at 10 March 2016
- MSCI AC World Index (Local)