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Hedge funds round up 2016 with 4.48% gains

Tuesday, January 10, 2017
Opalesque Industry Update - Hedge funds gained 1.01% during the month of December, with 2016 returns coming in at 4.48%. Meanwhile, underlying markets as represented by the MSCI AC World Index (Local) gained 2.38% in December with its 2016 returns coming in at 7.37%. North American equity markets traded higher in December as the Trump-driven reflation theme buoyed markets in a somewhat 'honeymoon' period post-election. The S&P 500 Index gained 1.82% during the month, with the DJIA also up 3.34%.

Indeed, central bank actions in the developed world outside of the US have helped to mediate year-end jitters to some extent. The ECB and BOJ remained committed to their current policies, which in turn also supported the performance of underlying equity markets. Ongoing political and economic events hold much uncertainty in store for 2017, and it remains to be seen how long markets will continue sing to the tune of Trump's rhetoric once he takes office later this month.

Below are the key highlights for the month of December 2016:

• Hedge funds gained 1.01% in December and 4.48% for annual year 2016 with underlying markets, as represented by the MSCI AC World Index (Local) up 7.37% for the year. Almost 19.7% of the hedge funds posted double digit returns in 2016, up from 17.6% in 2015.

• Assets under management shrank for the first time since 2008. The hedge fund industry contracted by US$21.8 billion in 2016, with investor redemptions of US$43.4 billion offsetting manager performance-driven gains of US$21.6 billion. In 2015 the industry grew by US$108.7 billion, with US$80.7 billion of investor allocations driving the bulk of the industry growth.

• Among developed mandates, North American and Japanese hedge funds gained 7.77% and 0.32% respectively in 2016 while European fund managers were down 0.12%.

• Emerging market mandates have preserved their gains for 2016 - up 7.31% for 2016 with strong showing from underlying Latin America and Eastern Europe/Russia mandates. Frontier markets investing hedge funds, as represented by the Eurekahedge Frontier Markets Hedge Fund Index are up 10.76% for 2016.

• Among strategic mandates, distressed debt hedge funds posted the best 2016 returns, gaining 12.02%, followed by event driven and relative value hedge funds which were up 9.70% and 6.64% respectively.

• The Eurekahedge Long/Short Equities Hedge Fund Index is up 3.89% for the year 2016 while underlying long-bias equity hedge funds gained 5.82%. This compares with 3.15% and -0.34% respectively for 2015.

• Asia ex-Japan hedge funds posted their fifth month of losses in 2016, and were up 0.66% for 2016, down from a 6.44% gain in 2015. Greater China mandates led much of the weakness during the year, posting their first annual loss in the last five years down 4.66% in 2016 compared with a gain of 10.24% the year before.

• Among volatility-focused hedge funds, relative value volatility hedge funds posted the best performance for 2016, gaining 7.79%, followed by short volatility hedge funds which gained 5.37% over the same period.

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