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With Intelligence reports challenging first half of the year for hedge funds

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Data from With Intelligence reveals that hedge funds faced a challenging half-year during H1 2022 as geopolitical and macro-economic events sparked market chaos and a rare, concerted sell-off in stocks and bonds.

However, this is not the sudden shock of Covid-hit H1 2020 but rather a steady, negative development during the past three quarters, the firm says. Hedge funds have still fared better than US large-cap stocks, for example, and there is an opportunity to take advantage of the volatility and weak economic forecasts and outperform.

Key Highlights of H1 2022

The Eurekahedge Global Composite Index was down 5.4 per cent for H1 2022. There was a contrast in performance between USD1 billion-plus funds and sub-USD1 billion funds as larger funds saw lower losses of 1.9 per cent compared to losses of 5.5 per cent for the sub-USD1 billion category.

AuM has declined by USD78.8 billion during the first six months of 2022, driven by USD37.7 billion of performance-based decline and USD41.1 billion of net outflows. The industry total stands at USD4.02 trillion at the end of H1.

Europe posted the sharpest H1 net outflows of USD36.0 billion as investor sentiment in the region was most impacted by the ongoing Russia-Ukraine conflict and European dependence on Russian energy supplies. By contrast, North America and Asia recorded smaller AuM declines of USD11.5 billion and USD14.5 billion, respectively.

Fixed income (-USD21.6 billion) and long/short equities (-USD21.2 billion) posted the steepest outflows in H1 as the two strategies struggled amid the rising interest rate environment, resulting in performance-based declines of USD23.4 billion and USD40.9 billion, respectively.

Most major asset classes ended H1 2022 in negative territory with bond markets recording their worst six-month period since 1900, while the S&P 500 recorded its worst H1 since 1970, the firm says. Despite this, hedge funds have outperformed the S&P 500 (-5.4 per cent vs -20.6 per cent) with CTAs performing best due to their downside protection strategies and adapted, shortened timeframes for hedging equity corrections.

Defensive strategies continued to outperform, with managed futures/CTA adding to Q1 gains to finish the half up 7.3 per cent, delivering at a critical time for investors just as in 2008, the firm says.

The industry experienced its third straight quarter of outflows in Q2 2022. After redemptions of USD13.5 billion in Q1 2022, there were further outflows of USD26.6 billion in Q2, as investors hunted for liquidity to give them flexibility at a time of crisis.

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