A sharp fall in assets under management in the beleaguered managed futures sector has offset increases in other strategy areas to constrain overall growth in the European hedge fund industry over the past few months.
That is the key conclusion from the EuroHedge mid-year 2013 assets survey – which appears, on the face of it, to show only very muted growth in a European hedge fund industry that has been struggling to generate or sustain positive momentum in terms of overall assets growth over the past several years.
The latest asset survey conducted by the EuroHedge data and research team shows that total assets in European offshore hedge funds stood at $444.6 billion at the end of June – up by just 2% from their corresponding level of $435.7 billion at the start of the year, and representing a year-on-year growth of just under 5% from the figure of $423.7 billion at the mid-year point in 2012.
Taking into account the $113 billion of assets that are also run in onshore UCITS-compliant European hedge fund-like strategies as at the end of June, however, the overall figure for European hedge fund assets rises to $557.6 billion – not far short of the industry’s pre-crisis and pre-UCITS peak of $575 billion at the start of 2008.
Given that the EuroHedge Composite Index median was up by 3.4% in the first six months of this year, and was up by around 6.88% on a 12-month rolling basis from July 2012 to the end of June this year, the survey would seem to indicate that overall asset growth is lagging performance – suggesting that there have been no net inflows into the industry.
But the true picture is somewhat more nuanced. Indeed the industry growth rate in Europe looks much more pronounced and encouraging – over both the first half of 2013 and over the past 12 months – if one excludes the significant decline in assets run in managed futures funds, which have become the dominant sector in Europe in recent years.
Having grown rapidly in the past few years to a peak of over $100 billion by last year – to account for almost 25% of the European industry at the start of 2012 – assets in CTAs have fallen by over 10% on a 12-month basis to below $90 billion as at the end of June this year.
This is largely the result of continued poor performance this year, with several of the larger CTA managers showing significant losses again in what has been a very difficult and disappointing period for systematic trading strategies.
Despite the year-on-year decline in managed futures, CTAs still account for just over 20% of total industry assets in Europe – almost double that of European long/short equity, which was for many years the dominant European hedge fund strategy and which has shrunk in recent years to account for only 11% of total industry assets.
But there is also growing evidence that the rocky performance has also triggered some substantial investor outflows away from managed futures – reversing the strong inflows of recent years that had been such a defining feature of the changing industry landscape in Europe in the five years since the onset of the financial crisis.
By contrast, assets in most other strategy areas have shown strong growth over recent months – reflecting both the generally robust performance in other strategies, notably long/short equity, and also the accelerating investor inflows into investment styles such as long/short equity, macro, market-neutral and credit.
Stripping out managed futures altogether, the adjusted industry asset totals for the mid-point of 2013, the start of 2013 and the mid-point of 2012 would be $354.7 billion, $339.6 billion and $323.7 billion respectively – which would, in turn, translate into increases of almost 4.5% over the first half of this year and more than 9.5% on a year-on-year basis.
Far from suggesting that there have been net outflows from the industry over the past year, this would in fact show that asset growth in all areas other than managed futures has been in line with (and even slightly ahead of) performance – and that the industry is starting to enjoy net inflows again.
This would be much more in keeping with the anecdotal evidence from prime brokers, cap intro teams and managers themselves – many of whom report a pick-up in investor interest and inflows into European funds over the past few months.
The signs are growing that global investors have gone from regarding Europe as a no-go area to seeing it as a potentially major investment opportunity – thanks largely to the change in sentiment and stability that has been gathering steam ever since ECB head Mario Draghi’s crucial ‘whatever it takes’ declaration last autumn.
As a result, industry participants say, European-based and European-focused managers – particularly in areas such as equity and credit – are starting to reappear prominently on the radar screens of global allocators again after a long period in the wilderness, with a number of European funds seeing significant asset inflows in recent months.
This view is backed up by the results of our survey – which shows that assets in European long/short equity, for instance, have grown by over 10% on a 12-month basis, while assets in global equity funds have grown by over 15%.
Assets in equity market-neutral and quant equity strategies have also grown very strongly on a year-on-year basis – up by around 20% – while assets in credit strategies have increased by 50% over the 12 months to the end of June.
Despite mixed performance in an unpredictable macro environment over the past year, assets in macro funds have also continued to grow year-on-year – standing at some $66 billion at the end of the first half this year, up from $62 billion a year ago.
On the other hand, assets in event-driven funds have shown no growth over the past 12 months – and have fallen a little since the start of this year. Fixed-income assets have flattened out since the start of the year, possibly reflecting investors’ increasing nervousness towards bond and rates strategies. And assets in emerging market debt and commodities – two of the asset classes that have performed worst this year – both fell in the first half.
In terms of the largest individual funds and firms in Europe, the picture tells a similar story: equity-focused firms and funds have generally grown their asset bases, while those focused on managed futures, or for which CTA strategies are a major part of their business, have generally declined.
The continued decline in AUM at Man GLG, for instance, is almost entirely the result of weak performance and asset outflows at the group’s AHL systematic trading operation. Winton’s assets have continued to fall back, down to just over $24 billion as at the end of June from close to $30 billion a year before.
BlueCrest’s slight overall fall in assets since the start of this year is principally due to its BlueTrend CTA business – although BlueCrest’s assets are still up by more than 10% on a year-on-year basis – while other major CTA players such as Transtrend and Aspect have all seen their assets under management fall over the past few months.
In contrast, some equity-focused firms have been enjoying a strong bounce-back. Most notable of all is Marshall Wace, which has seen its assets grow by almost 50% over the first half of the year – from $6.9 billion at the end of 2012 to $10.2 billion at the end of June – and by not far short of 100% on a 12-month basis.
Assets at The Children’s Investment Fund, Lansdowne, BlackRock and Brummer & Partners all show growth over the first six months of the year – while other major equity players such as Oxford Asset Management, Parvus and Odey have also enjoyed strong recent growth in assets under management.
Brevan Howard, which remains just behind BlueCrest in the rankings of the largest hedge fund firms by European hedge fund assets, has also seen a slight decline in its AUM since the start of the year – reflecting a rather lacklustre run of performance by the macro giant and some fairly significant turnover in terms of personnel and partners.
Overall, the big firms continue to dominate the industry – with the top 25 firms accounting for some 60% of overall industry assets. But there are indications that many other funds and firms below this top tier are starting to see increasing inflows, especially in the long/short equity area where many of the biggest funds are either closed or nearing their capacity limits.