Hedge Fund Flows Fall Flat in October

Hedge Fund Flows Fall Flat in October

The Eurekahedge Hedge Fund Index was up 0.31% in October. However, it doesn’t measure up to the market next to the MSCI ACWI (Local), which ended October up 1.93%.

Eurekahedge’s latest monthly report observes that US-China trade talks resumed, and this led to a certain tentative optimism. Since those are the two largest economies in the world, both the US and the east Asian economies improve when trade flows between the two counties free up a bit or even look likely to do so. US President Donald Trump postponed the scheduled tariff hike on Chinese goods in the spirit of the moment.

In other October world trade news, the 3-month Brexit extension granted by the EU to the UK on the particulars of Brexit failed to buoy the markets. The UK’s equity market underperformed its peers globally.

Against this backdrop, investors’ allocation of their capital to hedge funds has been flat. In the month of October, the net flow into hedge funds was positive, but only $0.1 billion. In Asia ex-Japan the net flow was slightly negative (-0.1). In Europe, it was a little further into the red (-0.2). Total assets for Asian hedge funds stood at US$182.7 billion as of October 2019. Total assets for European hedge funds were at $462.7 billion, below their January 2018 high, when there were at $577.5 billion.

In terms of performance-based growth in October: Japan and Latin America were flat; Europe slightly down; and Asia and North America significantly up. North American funds gained $2.3 billion from their performance.

Strategy Mandates

Breaking performance down by strategic mandate: long/short equities were the biggest gainers, earning $4.3 billion in performance, and receiving another $0.4 billion from investors, for a 0.61% increase in assets under management. Arbitrage funds gained $0.4 billion from performance, but then lost most of that ($0.3 billion) to net redemptions, for a 0.05% change in assets.

The Eurekahedge Hedge Fund Index’ year-to-date return is 6.27%. Roughly 30.1% of the managers who comprise the index have made double-digit gains year to date.

The Eurekahedge ILS Advisers Index, tracking fund managers with a mandate for insurance-linked securities, gained 1.17% in October. This brings it to 1.97% for 2019.

Asset Weighted and Volatility

The asset-weighted Mizuho-Eurekahedge Index tells a more bullish story than the main Eurekahedge index. The asset-weighted index was up 0.57% in October. All the Mizuho-Eurekahedge indexes are in the black for October. The Mizuho-Eurekahedge Asia Pacific Index gained 2.03% over the month. Year-to-date, these indexes are in positive territory, with Asia-Pacific and emerging markets mandates standing out in the crowd.

The CBOE Eurekahedge Volatility Indices consist of four equally weighted vol indices—long vol, short vol, relative value and tail risk. They are designed to track the results of their respective vol-based strategies.

In October, volatility was notably suppressed, and the index results show as much. Short vol was up more than 3% for the month, while long vol was down more than 2.5%. Relative value is up; tail risk is down. The direction of movement is the same, for all four cases for the year so far. Long vol managers are having a terrible year, down 9.5%, with less than two months left in 2019.

Closures in Latin America

This month’s Eurekahedge report includes a section on key 2019 trends in Latin American hedge funds. Its Latin America Hedge Fund Index was up 8.54% for the year, underperforming the MSCI EM Latin American Index.

Five funds with Latin American mandates closed in the third quarter of 2019, continuing a trend of the depopulation of this space, a trend that has been underway since 2011. There were 450 trends with such mandates in 2010, but there are only 336 remaining. That’s a net decline of 114, which breaks down into 140 launches and 254 closures.

Not all is doom and gloom from the Latin American region, though. Stepping back and looking at the period since the turn of the millennium, Latin American hedge funds outperform their peers. They have produced an annualized return during this period of 12.94%, which compares favorably to the global number of 8.22%.

 

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