PREQIN QUARTERLY UPDATE: HEDGE FUNDS Q2 2019 Insight on the quarter from the leading provider of alternative assets data
Performance Benchmarks Fund Managers Fund Launches Fund Searches
PREQIN QUARTERLY UPDATE: HEDGE FUNDS Q2 2019
Foreword
As geopolitical tensions and trade uncertainties intensify, the global macroeconomic outlook is increasingly uncertain. With bond yields falling, however, equities have rallied this year following a hellish Q4 2018. With these tailwinds, hedge funds have had an extremely strong start to 2019. But what does this all mean for investors? As uncertainty rises on the one hand, on the other, valuations are strong in risk assets such as equities. So where to put capital: for protection or for growth? As we enter the last phase of the market cycle, investors may increasingly consider the active risk management that hedge funds can provide. Although hedge funds are not unaffected by downward market movements, it is their ability to mitigate losses and diversify risks that has produced attractive long-term Sharpe ratios. Now, perhaps, is the time for investors to look to hedge fund managers to help weather a future that looks increasingly stormy, and still access a healthy return.
Indeed, Preqin data indicates that investor appetite for hedge funds is increasing: we have recorded the highest ever quarterly number (220) of investor mandates in Q2 2019. Although net flows into the industry are negative for Q1 2019 (-$22.1bn), an uptick in fresh investment may plug some of the movement from the sector, if not spark a return to positive flows. At the very least, we are expecting high levels of activity as investors proactively redeem and reallocate capital. The hedge fund sector represents a diverse array of products, instruments and regions; by employing multiple methodologies we can see significant performance changes between each and across quarters. As the market outlook grows increasingly divergent, building a portfolio that is diversified – strategically and geographically – may help investors to navigate all possible market directions. The trick will be finding the right managers from the 17,190+ funds currently open to investment.
Contents 3
Performance Update
6
Fund Launches
4
Benchmarks
7
Fund Searches
5
Largest Fund Managers
All rights reserved. The entire contents of Preqin Quarterly Update: Hedge Funds, Q2 2019 are the Copyright of Preqin Ltd. No part of this publication or any information contained in it may be copied, transmitted by any electronic means, or stored in any electronic or other data storage medium, or printed or published in any document, report or publication, without the express prior written approval of Preqin Ltd. The information presented in Preqin Quarterly Update: Hedge Funds, Q2 2019 is for information purposes only and does not constitute and should not be construed as a solicitation or other offer, or recommendation to acquire or dispose of any investment or to engage in any other transaction, or as advice of any nature whatsoever. If the reader seeks advice rather than information then he should seek an independent financial advisor and hereby agrees that he will not hold Preqin Ltd. responsible in law or equity for any decisions of whatever nature the reader makes or refrains from making following its use of Preqin Quarterly Update: Hedge Funds, Q2 2019. While reasonable efforts have been made to obtain information from sources that are believed to be accurate, and to confirm the accuracy of such information wherever possible, Preqin Ltd. does not make any representation or warranty that the information or opinions contained in Preqin Quarterly Update: Hedge Funds, Q2 2019 are accurate, reliable, up to date or complete. Although every reasonable effort has been made to ensure the accuracy of this publication Preqin Ltd. does not accept any responsibility for any errors or omissions within Preqin Quarterly Update: Hedge Funds, Q2 2019 or for any expense or other loss alleged to have arisen in any way with a reader’s use of this publication.
2
Performance Update
Fig. 1: Performance of Hedge Funds in Q2 2019 by Structure*
3%
15%
Net Return
5% 0%
7.20% 0.57%
-5%
-4.87%
-10% -15%
-13.97%
Hedge Funds
5-Year Annualized
3-Year Annualized
2-Year Annualized
12 Months
Q2 2019
Q1 2019
Q4 2018
Q3 2018
-20%
S&P 500 PR Index
0.69%
Fund of CTAs
CTA
Alternative Mutual Fund
UCITS Hedge Fund
Fund of Hedge Funds
Hedge Fund
0%
Source: Preqin Pro
Fig. 3: Cumulative Returns of Hedge Funds in Q2 2019 by Geographic Focus* 3%
Cumulative Net Return
10%
3.83%
2.09%
1.95%
1%
13.07%
11.91% 10.18% 8.22% 7.43% 8.46% 5.46% 5.37% 5.15% 3.79% 2.45% 3.07%
2.45%
2%
All top-level strategies managed a positive return for Q2; CTAs led the pack with a return of 3.84%. This figure marks the best quarterly return for CTAs since Q1 2015 (+4.57%). Credit and macro are the only strategies that avoided any negative monthly return during the quarter, both remaining positive in May when other strategies faltered. This left credit and macro strategies with reputable returns of 1.70% and 2.66% for Q2 respectively.
Fig. 2: Performance of Hedge Funds vs. S&P 500 PR Index*
3.84%
4%
Net Return
The Preqin All-Strategies Hedge Fund benchmark has sustained its good performance from the beginning of the year, posting a Q2 return of 2.45% (Fig. 1). Funds focused on North America were the top performers geographically with a return of 2.58% for the quarter, closely followed by funds targeting emerging markets (+2.22%, Fig. 3). Asia-Pacific-focused funds were the only geographic benchmark to make a loss for this quarter: even with a respectable June return of 2.20%, the benchmark was just shy of positive with a return of -0.08%.
2.58% 2.22%
2% 1%
1.58% 1.12%
0%
-0.08%
-1% -2% Apr-19 North America Asia-Pacific Emerging Markets
May-19
Jun-19
Europe Developed Markets
Source: Preqin Pro
Source: Preqin Pro
*Please note, all performance information includes preliminary data for June 2019 based upon net returns reported to Preqin in early July 2019. Although stated trends and comparisons are not expected to alter significantly, final benchmark values are subject to change.
Š Preqin Ltd. www.preqin.com
3
PREQIN QUARTERLY UPDATE: HEDGE FUNDS Q2 2019
Benchmarks Fig. 4: Summary of Q2 2019 Performance Benchmarks (Net Return, %)* Benchmark Name
Apr-19
May-19
Jun-19
Q2 2019
12 Months
3-Year Annualized
Hedge Funds
1.32
-1.00
2.14
2.45
3.07
7.43
HF - Equity Strategies
1.67
-2.40
2.82
2.04
2.43
8.51
HF - Event Driven Strategies
1.47
-2.03
2.09
1.49
1.65
7.45
HF - Relative Value Strategies
0.34
-0.03
0.27
0.58
1.87
3.75
HF - Macro Strategies
0.51
0.13
2.01
2.66
4.46
4.79
HF - Multi-Strategy
1.84
-0.66
2.20
2.38
2.20
6.63
HF - Credit Strategies
0.85
0.19
0.65
1.70
4.18
6.66
Activist
1.55
-2.00
2.08
1.59
1.70
9.32
Volatility
0.88
-0.36
1.98
2.51
4.27
7.50
Discretionary
1.42
-1.59
2.64
2.45
3.20
8.17
Systematic
1.06
-1.37
2.06
1.73
2.23
5.11
HF - North America
1.64
-2.04
3.03
2.58
3.14
8.49
HF - Europe
1.26
-0.93
0.80
1.12
-1.18
5.28
HF - Asia-Pacific
0.44
-2.19
1.71
-0.08
-1.41
6.23
HF - Developed Markets
1.75
-1.69
1.55
1.58
3.02
6.87
HF - Emerging Markets
0.86
-0.83
2.20
2.22
6.92
8.78
HF - USD
1.31
-1.28
2.71
2.73
2.98
7.75
HF - EUR
0.72
-1.44
0.92
0.18
-2.58
2.44
HF - GBP
1.28
-1.22
0.78
0.83
-2.63
3.56
HF - JPY
-0.02
-0.84
-0.32
-1.14
-6.16
3.58
HF - BRL
0.54
0.77
1.85
3.18
16.01
15.18
HF - Emerging (Less than $100mn)
1.38
-0.72
2.28
2.95
4.07
7.74
HF - Small ($100-499mn)
1.08
-1.10
1.65
1.63
1.58
7.33
HF - Medium ($500-999mn)
1.04
-1.13
2.30
2.21
3.69
7.79
HF - Large ($1bn plus)
1.59
-0.37
2.59
3.83
5.82
7.70
Funds of Hedge Funds
1.02
-0.75
1.68
1.95
1.13
3.96
FOHF - Equity Strategies
1.39
-1.95
1.37
0.77
-1.00
4.33
FOHF - Multi-Strategy
0.76
-0.47
1.87
2.16
1.28
3.77
Funds of CTAs
1.89
-1.57
3.53
3.83
3.64
-0.74
FOHF - USD
0.94
-0.76
1.93
2.11
1.66
4.73
FOHF - EUR
0.56
-1.02
0.43
-0.04
-3.70
0.51
Alternative Mutual Funds
1.13
-1.35
2.33
2.09
0.97
3.30
UCITS
0.92
-1.78
1.58
0.69
-0.59
2.52
UCITS - Equity Strategies
1.38
-2.92
2.21
0.60
-2.03
4.12
UCITS - Relative Value Strategies
0.30
-0.88
0.82
0.23
-1.29
-0.02
UCITS - Macro Strategies
1.24
-1.17
1.15
0.92
1.22
2.15
UCITS - USD
1.13
-2.10
2.25
1.23
0.90
4.26
UCITS - EUR
0.85
-1.85
1.41
0.39
-1.40
1.47
CTAs
0.99
-0.27
3.11
3.84
3.45
1.32
Discretionary
-0.92
0.40
0.20
-0.33
-2.51
0.36
Systematic
1.34
-0.56
3.66
4.45
4.87
0.63
CTA - USD
1.07
-0.09
3.43
4.44
4.21
1.69
CTA - EUR
-0.38
-2.09
1.86
-0.65
-4.86
-2.24 Source: Preqin Pro
*Please note, all performance information includes preliminary data for June 2019 based upon net returns reported to Preqin in early July 2019. Although stated trends and comparisons are not expected to alter significantly, final benchmark values are subject to change.
4
Largest Fund Managers Fig. 5: Largest Hedge Fund Managers by Assets under Management Manager
Location
Year Established
Assets under Management
US
1975
$162.5bn as of 31 March 2019
AQR Capital Management
US
1998
$99.6bn as of 31 December 2018
Man Group
UK
1983
$80.5bn as of 31 March 2019
Renaissance Technologies
US
1982
$65.2bn as of 31 March 2019
Two Sigma Investments
US
2001
$60.0bn as of 31 March 2019
Millennium Management
US
1989
$37.8bn as of 31 March 2019
J.P. Morgan Asset Management
US
1974
$35.5bn as of 31 March 2019
Elliott Management
US
1977
$34.0bn as of 31 December 2018
Marshall Wace
UK
1997
$33.5bn as of 1 April 2019
BlackRock Alternative Investors
US
2005
$31.2bn as of 31 March 2019
Baupost Group
US
1982
$31.0bn as of 30 June 2018
D.E. Shaw & Co.
US
1988
$29.9bn as of 1 April 2019
Davidson Kempner Capital Management
US
1990
$29.8bn as of 30 September 2018
Adage Capital Management
US
2001
$29.7bn as of 31 March 2019
Citadel Advisors
US
1990
$28.5bn as of 31 December 2018
Farallon Capital Management
US
1986
$27.3bn as of 31 March 2019
Wellington Management
US
1994
$26.0bn as of 31 March 2019
Viking Global Investors
US
1999
$26.0bn as of 31 December 2018
Winton Capital Management
UK
1997
$23.7bn as of 31 March 2019
H2O Asset Management
UK
2010
$23.2bn as of 31 March 2019
Bridgewater Associates
Source: Preqin Pro
Fig. 6: Largest Fund of Hedge Funds Managers by Assets under Management Manager
Location
Year Established
Assets under Management
Blackstone Alternative Asset Management
US
1990
$80.0bn as of 31 March 2019
UBS Hedge Fund Solutions
US
2000
$39.1bn as of 31 March 2019
Goldman Sachs Asset Management
US
1997
$31.4bn as of 31 December 2018
Grosvenor Capital Management
US
1971
$27.3bn as of 30 June 2018
BlackRock Alternative Advisors
US
1995
$24.2bn as of 31 March 2019
Morgan Stanley Investment Management
US
2000
$21.6bn as of 31 March 2019
EnTrust Global
US
1971
$20.5bn as of 30 September 2018
Lighthouse Partners
US
1999
$14.7bn as of 31 December 2018
Man FRM
UK
1991
$14.2bn as of 31 March 2019
Aberdeen Standard Investments
UK
1998
$13.9bn as of 31 March 2019
Rock Creek Group
US
2002
$13.8bn as of 31 December 2018
Credit Suisse Alternative Funds Solutions
US
1998
$13.5bn as of 31 December 2018
J.P. Morgan Alternative Asset Management
US
1995
$12.3bn as of 31 March 2019
Aetos Alternatives Management, LP
US
2001
$11.3bn as of 31 March 2019
PAAMCO Prisma UBP Alternative Investments HSBC Alternative Investments K2 Advisors Pictet Alternative Advisors Mercer Global Investments Europe
US
2000
$11.2bn as of 31 March 2019
Switzerland
1969
$10.1bn as of 31 December 2018
UK
1994
$10.0bn as of 31 March 2019
US
1994
$10.0bn as of 31 March 2019
Switzerland
1991
$9.8bn as of 31 December 2018
Ireland
2006
$9.3bn as of 31 March 2019 Source: Preqin Pro
Š Preqin Ltd. www.preqin.com
5
PREQIN QUARTERLY UPDATE: HEDGE FUNDS Q2 2019
Fund Launches
In Q2 2019, there were 86 new hedge fund launches, of which 87% were traditional single-manager commingled funds (Fig. 7). No CTAs launched in Q2, which could be a knock-on effect of underperformance in 2018 (-3.96% vs. -3.01% for hedge funds).
Fig. 7: Hedge Fund Launches in Q2 2019 by Structure
1% 9% 3%
Europe-based funds accounted for a greater proportion (36%) of hedge fund launches in Q2, up from 23% in Q1. Notable managers including Man Group, Algebris Investments and Credit Suisse all launched hedge fund strategies in the quarter.
Hedge Fund UCITS Alternative Mutual Fund Fund of Hedge Funds
New hedge funds have steadily shifted their allocations over the past four quarters from a global focus to more region-specific opportunities in developed markets, as Fig. 8 shows.
87%
CTA
Source: Preqin Pro
Brexit and an escalating US-China trade war, macro strategies – which represented 12% of launches in Q2 – could be better positioned to navigate volatile market events.
Fig. 8: Hedge Fund Launches by Geographic Focus, Q3 2018 - Q2 2019
Fig. 9: Hedge Fund Launches by Top-Level Strategy, Q3 2018 - Q2 2019
Proportion of Fund Launches
100% 90% 80% 70% 60%
66%
64%
61%
50% 40% 30% 20% 10% 0%
4% 13% 6% 11% Q3 2018
52%
4% 9%
1% 10% 7%
6% 7% 5%
12%
18%
20%
23%
Q4 2018
North America Asia-Pacific Global
Q1 2019
Q2 2019
Europe Emerging Markets Source: Preqin Pro
6
Proportion of Fund Launches
As stock markets in Europe and the US remained strong throughout Q2, equity strategies were once again the strategy most commonly deployed among new funds, representing 45% of launches (Fig. 9). In contrast, with more volatility potentially looming from
100% 80% 60% 40% 20%
4% 2% 8% 11% 7% 11% 12%
3% 9% 8% 5% 7% 13% 6% 6%
2% 6% 14% 5% 10% 10% 5% 8%
1% 8% 8% 5% 16%
44%
39%
41%
45%
Q3 2018
Q4 2018
Q1 2019
Q2 2019
10% 8% 3%
0% Equity Strategies Event Driven Strategies Relative Value Strategies Multi-Strategy Alternative Risk Premia
Macro Strategies Credit Strategies Managed Futures/CTA Niche Strategies Source: Preqin Pro
Fund Searches
Fig. 10: Amount of Fresh Capital Investors Expect to Invest in Hedge Funds over the Next 12 Months
Less than $50mn
5% 2% 14%
$50-99mn
Long/short equity remains the most preferred strategy among hedge fund investors, with 47% planning such investments in the year ahead (Fig. 11). Macro is also in favour with investors at present, as targeted by 34% – this is up from 20% in Q1 2019, suggesting that many are looking to position their portfolios more defensively in anticipation of a market correction.
$100-299mn $300-599mn $600mn or More
79%
In times of market uncertainty, it is little surprise that investors are prioritizing a diverse portfolio of investments in the next 12 months: 68% of hedge fund investors are looking for funds focused on global opportunities (Fig. 12).
60% 50% 40% 30%
24%
20%
19%
15%
10%
9%
5%
Source: Preqin Pro
Global
Rest of World
0%
Asia-Pacific
Fixed Income
Special Situations
Equity Market Neutral
Long/Short Credit
Event Driven
Managed Futures/CTA
Multi-Strategy
Fund of Hedge Funds
18% 18% 16% 14% 13% 12%
68%
70%
Europe
31% 30%
80%
North America
34%
Fig. 12: Regions Targeted by Hedge Fund Investors over the Next 12 Months Proportion of Fund Searches
47%
Macro
50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
Long/Short Equity
Proportion of Fund Searches
Fig. 11: Core Strategies Targeted by Hedge Fund Investors over the Next 12 Months
Source: Preqin Pro
Emerging Markets
Over the course of Q2 2019, 220 investors issued hedge fund searches and mandates on Preqin Pro; just over half (51%) of these were for a single fund investment, which notably compares with 43% of searches issued in Q1 2019. Hedge fund investors appear to be taking a somewhat cautious approach in terms of capital outlay, with 79% planning to allocate less than $50mn in fresh capital over the next 12 months (Fig. 10).
Source: Preqin Pro
Š Preqin Ltd. www.preqin.com
7
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