Hedge funds protect wealth despite worst month since March 2020

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Hedge funds were in the red in November, but they protected wealth, with the average hedge fund falling less than major stock indexes. However, PivotalPath reports that they have had their worst month since the depths of the pandemic in March 2020.

Hedge funds hit by volatility

Intelligence’s Eurekahedge Hedge Fund index fell 1.14% last month, outperforming the local MSCI ACWI index, which fell 2.03%. Other sources assess the decline in hedge funds slightly, with PivotalPath reporting a drop from 1.6% to 2%. This is the worst performance for hedge funds since March 2020.

Since the start of the year, the Eurekahedge Hedge Fund index is up 8.36%. On an asset-weighted basis, the Eurekahedge Index fell 1.77% last month and only rose 2.46% year-to-date, demonstrating the challenges facing some of the biggest fund managers this year.

Global stocks were hit by significant levels of uncertainty last month as the Omicron variant of COVID-19, which is more contagious than previous variants, weighed on risk sentiment. Investors began to fear the economic recovery could derail as some countries reimposed lockdowns.

Meanwhile, the Federal Reserve has said it no longer sees inflation as transient and plans to cut its quantitative easing much faster than originally expected. Due to all these uncertainties, the CBOE VIX jumped 67.22% e last month, weighing on the performance of global equities.

The Dow Jones Industrial Average fell 3.73% in November, while the S&P 500 was down 0.83%, taking their year-to-date returns to 12.67% and 21.59%, respectively. European stock indices were also in the red in November, with the Euro Stoxx 50 down 4.41% and the DAX down 3.75%.

November brought a reversal in investor flows and performance

Final asset flow figures for October show performance gains of $ 20.9 billion and investor inflows of $ 8.6 billion. Preliminary figures for November indicate a reversal: $ 15.9 billion in performance losses and $ 19.4 billion in investor outflows.

The global hedge fund industry had $ 2.4 trillion in assets under management last month after $ 94.6 billion in performance gains and $ 64.9 billion in investor inflows so far This year. Separately, Preqin announced earlier this month that hedge funds are on track for inflows this year for the first time in three years.

The company recorded $ 40.9 billion in inflows for the first nine months of the year, compared to outflows of $ 97.2 billion and $ 44.5 billion in 2019 and 2020, respectively.

Performance by strategy

Long / short equity fund managers posted the worst performance in November with $ 8.5 billion in performance losses and $ 15 billion out of investors. The poor performance of global equities weighed heavily on the performance of the strategy last month.

In contrast, relative value fund managers posted the best performance in November with $ 200 million in performance-based gains and $ 400 million in net investor outflows. Despite their negative performance-based return, CTA / managed term fund managers have by far the largest influx of investors. Arbitrage was the only other hedge fund strategy to record an influx of investors in November.

Year-to-date, long / short stocks and multi-strategy hedge funds have performed best with $ 27.9 billion and $ 18.4 billion in performance-based gains, respectively. However, long / short stocks had the highest net exits of any strategy. Macro funds, distressed debt and other hedge funds have also been in the red for investor flows since the start of the year. Arbitrage and multi-strategy funds recorded the largest inflows of $ 31.1 billion and $ 19 billion, respectively.

Of note, crypto hedge funds outperformed bitcoin in November. The Eurekahedge Crypto-Currency Hedge Fund index fell 2.37% last month, compared to Bitcoin’s 6.52%. Year-to-date, crypto hedge funds are up 171.11%, compared to Bitcoin’s 101.03% return for the first 11 months of the year.

Long-only hedge funds lead the way

Long-only hedge funds have performed particularly well this year. The Eurekahedge Long-Only Absolute Return Fund index gained 13.02% in the first 10 months of the year, outperforming other hedge funds and funds of funds, which gained 9.59% and 9.42% respectively .

While November brought significant volatility, as already mentioned, long-biased hedge funds still returned 10.4% through November, showing that the difficult month did not hurt their performance much.

Eurekahedge notes that last year’s performance for long-term hedge funds has been difficult but exceptional. They fell 21.12% in the first quarter as news of the pandemic hit, hammering global stocks. The World Health Organization then declared COVID-19 a pandemic, and governments around the world have imposed shutdowns, forcing non-essential businesses to shut down for an extended period.

The Fed lowered benchmark interest rates to zero and relaunched quantitative easing. As a result, global equity markets saw a massive rebound from the bottom in March 2020, giving long-term absolute return hedge funds a boost in the process.

Hedge funds following the strategy returned 43.17% between April and December 2020, allowing them to recoup all their first quarter losses and end the year in the green with an attractive double-digit return of 12.91% despite the pandemic.

Maintain momentum

Long-only absolute return hedge funds maintained their positive momentum at the start of the year. The Eurekahedge Long-Only Absolute Return Hedge Fund Index generated eight months of positive returns this year. July and September were the only negative months with returns of -0.94% and -1.47%, respectively.

“The combination of strong fiscal support, accommodating monetary policy and high COVID-19 vaccination rates has allowed economies to gradually reopen and boost the momentum for the global economic recovery,” the report said. “This has led to an increase in investor risk sentiment which has supported the performance of global equity markets and has benefited absolute return hedge funds over the long term. “

Assets under management by long-term absolute return funds have now surpassed pre-pandemic levels, reaching $ 268.7 billion after adding $ 8.6 billion in the first 10 months of this year. The strategy saw $ 10 billion in performance-related gains this year, which was partially offset by $ 1.4 billion in net investor outflows.

Last year, long-term hedge funds generated $ 11.8 billion in performance-related gains, which was partially offset by $ 6.8 billion in net investor outflows to add $ 5 billion assets under strategy management.


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