- Hedge funds enjoyed strong gains in 2020 as risk markets swiftly rebounded on recovery hopes and unprecedented stimulus.
- The average fund returned 12.3% in 2020, the largest annual return since 2009, according to analytics firm HFM.
- The hedge-fund industry’s assets under management ballooned 7.7% to a record $US3.5 trillion.
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Hedge funds closed out 2020 with their best average return in more than a decade as unprecedented fiscal stimulus and Federal Reserve support lifted fuelled markets’ rapid-fire rebound.
The average fund returned 12.3% throughout last year, marking the largest average annual return since 2009, according to a report by fund analytics firm HFM. The average equity fund outperformed the S&P 500, though the overall average return lagged the index by 4 percentage points.
HFM’s index of equity funds returned an average 19.4% in 2020, handily beating out its event-driven, managed-futures and macro indexes. European funds lagged with a 9.8% gain on average, while North American and Asia-Pacific funds rose 14.6% and 11.5%, respectively.
Strong fund gains mirror the bullish trends seen around the world. The coronavirus’s initial hit dragged risk assets lower in spring 2020 before trillions of dollars in stimulus and widespread central-bank easing restored healthy market functioning. Hopes for a swift economic reopening quickly drove stocks back to pre-pandemic highs by August. More recently, steps toward widespread vaccination and the likelihood of additional stimulus boosted prices to fresh records.
The broad rallies pushed swaths of investor capital into the hedge fund industry. Assets under management swelled 7.7% to a record $US3.5 trillion. Bullish investor sentiment fuelled inflows of roughly $US32 billion in November alone. HFM estimates that hedge funds could manage more than $US4 trillion as early as the first quarter of 2021.
Credit and fixed-income funds were the only ones to see net inflows in 2020, likely buttressed by the Fed’s backstopping of the corporate credit market.
While existing funds thrived, fund openings almost completely froze. Just 274 new funds launched last year compared to the 373 openings seen in 2019. Only 90 funds opened in the second half of 2020, and fewer funds opened in the fourth quarter than in any quarter on record.
The inability to easily hold face-to-face meetings and the typical holiday-season halt likely contributed to the slowdown, according to HFM.
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