Preqin quarterly update hedge funds q2 19

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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