Hedge funds booked a solid 1.01% in December to close out last year with a 4.48% annual gain, according to a flash update of Eurekahedge’s Hedge Fund Index, but still underperformed benchmark measures as industry assets sank for the first since 2008.
Underlying markets as represented by the MSCI AC World Index (Local) gained 2.38% in December, the company said, with 2016 returns coming in at 7.37%. The S&P 500 Index gained 1.82% during the month, with the DJIA also up 3.34%.
Central bank actions in the developed world outside of the U.S. helped to mediate year-end jitters, Eurekahedge said, as the ECB and BOJ remained committed to their current policies, and thus supporting the performance of underlying equity markets. Ongoing political and economic events hold much uncertainty in store for 2017, the firm warned.
Key highlights for December 2016:
- 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 $21.8 billion in 2016, with investor redemptions of $43.4 billion offsetting manager performance-driven gains of $21.6 billion. In 2015 the industry grew by $108.7 billion, with $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 preserved their gains in 2016, up 7.31%. Strong showings were seen from underlying Latin America and Eastern Europe/Russia mandates. Frontier markets investing hedge funds, as represented by the Eurekahedge Frontier Markets Hedge Fund Index, were 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 was up 3.89% for the year 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 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% 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.
Eurekahedge’s data was based on 32.20% of funds which have reported December 2016 returns as of 10 January 2017. The company tracks asset flows, hedge fund performance and regional key trends across the hedge fund universe, tracking more than 130 data points on more than 24,000 alternative funds in its database.