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Despite lacklustre returns of 1.45% in 2015, institutions double up their hedge fund investments

Tuesday, January 19, 2016
Opalesque Industry Update - The January 2016 Eurekahedge Report has been released

Key highlights for December 2015:

Investor allocations drive hedge fund AUM growth in 2015 despite lacklustre returns of 1.45% - the lowest since 2011. Net investor allocations for the year came in at US$77.0 billion, more than twice the US$34.8 billion in inflows recorded in 2014.

Asia ex-Japan investing funds have delivered the best returns globally and are up 8.23% in 2015. Assets managed by Asia ex-Japan grew by US$10.7 billion for the year with US$5.6 billion attributed to investor inflows and US$5.1 billion attributed to performance-based gains. Within the region, Greater China mandated hedge funds are up 11.07%, outperforming the CSI 300 Index by 5.49%.

North American hedge funds post their worst performance since 2008, down 0.55% in 2015. Despite this muted performance, investor inflows for 2015 into the region stood at US$38.2 billion, twice the US$18.8 billion recorded in 2014.

European hedge funds recorded the strongest growth in AUM among all regional mandates in 2015, with total AUM growing by 9.14% in 2015 to come in at a record high of US$531.3 billion.

Multi-strategy hedge funds have grown their asset base by 12% in 2015, recording their highest level of investor inflow on record since 2007, with net investor allocations worth US$21.8 billion. Total AUM for multi-strategy hedge funds stand at US$370.7 billion, the highest level on record.

Billion dollar hedge funds saw their asset grow by US$69.0 billion in 2015, with US$44.4 billion of the gain in assets attributed to investor inflows. This compares with net investor allocations of US$10.27 billion and US$126.91 billion in 2014 and 2013 respectively. Billion dollar funds have accounted for almost 73% of investor allocations into hedge funds since 2013.

2015 did not end with much pomp and circumstance and was a challenging year for managers. Hedge funds ended 2015 on a low note with the Eurekahedge Hedge Fund Index down 0.70% in December, while the MSCI World Index declined 2.23% during the month. Overall for 2015, hedge funds were up 1.45% (their lowest annual return on record since 2011) amid a challenging market environment. Meanwhile underlying markets as represented by the MSCI World Index ended the year in the red, down 0.48%. On the back of ongoing macroeconomic themes, central bank policy has been dominating the news for the year with assurances on achieving the inflation target, yet looking back; the stimulus doled out by central banks worldwide was rather prudent – mildly extending the asset purchase program with its intensity mismatched to that expected by investors such as that in Europe.

Disappointing ECB announcement in early December saw several reversals in the equity markets especially i n Europe, making trading conditions somewhat choppy throughout the month - investors have also unwound their German bund holdings, thus seeing a spike in its yield. Losses were also extended throughout European equities as well as in the US and Japan. The long-awaited increase in interest rate in the US finally happened, sending a brief rally in US equity markets before they fell, ending the month in the red. Over in Asia, the equity market in mainland China performed well on the basis of several measures by Chinese regulators to curb the decline of the stock market, however the recovery has been short-lived as the events in early January have shown - the Chinese markets are still not out of the woods.

Key trading themes during the month puts a spotlight on currencies, equities and fixed income to which hedge funds saw significant drag on performance. Across regional mandates, Asia ex-Japan hedge funds have also been performing well despite the global market lethargy, with some hedge funds posting gains from arbitraging opportunities present in the Chinese markets. Though Asia ex-Japan hedge funds were up 8.23% year-to-date, on the other hand, the performance of North American hedge funds was rather disappointing – losing 0.55% year-to-date, its worst annual return since 2008. All strategic mandates were down in December with CTA/managed futures hedge funds registering steep declines as hedge funds with exposure to European and North American equity futures as well as the euro/US dollar pair saw heavy losses following what was deemed by the markets as inadequate policy response by the ECB earlier in December.

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