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Global hedge funds post 4.79% return in Q1, strongest first quarter performance since 2006

Thursday, April 22, 2021
Opalesque Industry Update - Hedge fund managers were up 0.95% in March - supported by the strong performance of the global equity market as represented by the MSCI ACWI (Local) which gained 3.24% during the month. In terms of year-to-date return, global hedge funds had their best start of the year as they returned 4.79%, which was their strongest first quarter performance since 2006. In the same vein, around 75% of the global hedge funds tracked by the Eurekahedge database generated a positive return in 2021.

The Eurekahedge Long Short Equities Hedge Fund Index was up 1.26% in March, supported by the strong performance of the equity market, particularly in Europe and the US, with the DAX and S&P 500 gaining 8.86% and 4.24% during the month respectively. In terms of year-to-date performance, long/short equities managers were up 6.49% - marking their best start of the year since 2006, a huge improvement compared to the previous year when they were down by 11.57% in the first three months of 2020.

North American hedge funds continued to outperform their peers as they recorded their back-to-back best quarterly performances during the month. The mandate gained 1.56% in March, bringing their Q1 2021 return to 6.77% - marking their best first quarter performance since 2000. In the same vein, driven by the strong rally of the global equity market, the Eurekahedge North American Hedge Fund Index posted 10.85% return in Q4 2020, which was their best quarterly performance since the inception of the index.

The Custom High Yield Debt Hedge Fund Index was up 1.13% over the first two months of 2021, outperforming the US High Yield Master II Index which returned 0.73% over the same period. The high yield debt managers benefitted from the recovery of distressed debt of affected companies during the COVID-19 crisis, as seen from the 23.9% return of the US High Yield Master II Index for the 11 months since end-March 2020. In the same period, the mandate recorded an accumulated return of 17.01% - their strongest 11-month performance since 2010.

The population share of hedge funds managing in excess of one billion dollars has grown rapidly. In 2011, only 3.4% of the total hedge fund population had an AUM of at least one billion dollars. The figure has since grown to 8.3% in 2021, more than doubling its population share in just a decade.

Average performance fees of new hedge fund up at 15.72% from 13.74% in 2019

The average performance fees of global hedge funds had been on a downtrend since 2007, until a recent increase in the average performance fees of newly launched funds in 2020 and 2021 broke the declining pattern. In 2020 and 2021, the average performance fees of new hedge fund start-ups were 15.10% and 15.72% respectively, up from 13.74% in 2019. The Eurekahedge database had captured some newly launched hedge funds with an unconventional fee structure of offering zero management fees and higher performance fees. On the other hand, average management fees continued to decline, exacerbated by the new fee model adopted by new players in the hedge fund industry.

Structured credit hedge funds were up 0.42% in March, bringing their year-to-date return to 3.24% and outperforming their fixed income peers who returned 1.87% over the first quarter of 2021. On the other hand, as shown in our strategy profile, structured credit hedge funds generated the best annualised return of 9.92% since end-2009, outperforming their other credit-focused peers which are distressed debt, trade finance, fixed income and ILS funds who generated an annualised return of 7.98%, 6.23%, 6.13% and 2.60% respectively.

Fund managers focusing on cryptocurrencies were up 19.19% in March as tracked by the Eurekahedge Crypto-Currency Hedge Fund Index - supported by the performance of Bitcoin which gained 25.92% during the month. On a year-to-date basis, cryptocurrency hedge funds are having their best start to the year as they generated 116.81% in the first quarter of 2021, thanks to the extraordinary performance of the cryptocurrency market in which the prices of some altcoins such as Dogecoin rose to an extreme level.

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