Key Takeaways
- • Hedge funds averaged 0.43% returns during the first seven months of 2018, marking the weakest performance since 2008 when they declined 0.23% over the same period, according to Eurekahedge data.
- • Only 49% of hedge funds generated positive returns year-to-date, with approximately 13% posting double-digit gains, indicating widespread underperformance across the industry.
- • Asset growth stalled dramatically, with only $6.8 billion in net new assets during the year-to-date period, compared to $126.7 billion in the comparable 2017 period—a decline of 94.6%.
- • Asia-invested hedge funds suffered particularly acute losses, with the Eurekahedge Asian Hedge Fund Index down 1.61% for the year following 17.1% gains in 2017, driven by U.S.-China trade war uncertainty and Japanese fund losses of 2.19%.
- • Managed futures and CTA strategies experienced significant outflows, with assets declining 12% ($30.7 billion) in 2018, reflecting performance-driven redemptions and subdued investor allocations.
Summary
Hedge funds faced their most challenging performance environment since the 2008 financial crisis through the first seven months of 2018, with average returns of just 0.43% according to Eurekahedge, the independent data provider. This marks a striking deterioration from the sector's historical performance expectations and represents the weakest stretch since 2008, when hedge funds declined 0.23% over the same timeframe. The underperformance was broadly distributed across the industry, with only 49% of funds achieving positive returns and merely 13% reaching double-digit gains.
The weakness extended beyond performance metrics to asset flows, revealing investor caution and redemption pressure. Total assets under management grew by only $6.8 billion during the year-to-date period—a dramatic collapse from $126.7 billion in net inflows during the same seven-month span of 2017. This 94.6% decline in asset growth reflects both performance-driven losses and subdued capital allocation decisions from institutional investors and family offices. Managed futures and CTA strategies proved particularly vulnerable, with assets contracting by nearly 12% ($30.7 billion) as investors rotated away from underperforming systematic strategies.
Geographic performance divergence underscored the impact of macroeconomic uncertainties. Asia-invested hedge funds bore the brunt of trade tensions, with the Eurekahedge Asian Hedge Fund Index declining 1.61% year-to-date following a robust 17.1% gain in 2017. Japanese funds deteriorated further, posting 2.19% losses for the year. In contrast, Latin American fund managers outperformed with 3.89% gains in the first seven months, suggesting selective opportunities outside geopolitical stress zones. By July, the broader Eurekahedge Hedge Fund Index managed a modest 0.41% monthly advance, buoyed by North American and European equity performance driven by strong second-quarter corporate earnings.
The 2018 performance represents a structural challenge for the hedge fund industry, combining weak absolute returns with significant asset base contraction. The combination of limited positive returns, high redemption rates, and concentrated geographic weakness signals investor skepticism about hedge fund value proposition relative to public equities and lower-cost alternatives.
The weakness extended beyond performance metrics to asset flows, revealing investor caution and redemption pressure. Total assets under management grew by only $6.8 billion during the year-to-date period—a dramatic collapse from $126.7 billion in net inflows during the same seven-month span of 2017. This 94.6% decline in asset growth reflects both performance-driven losses and subdued capital allocation decisions from institutional investors and family offices. Managed futures and CTA strategies proved particularly vulnerable, with assets contracting by nearly 12% ($30.7 billion) as investors rotated away from underperforming systematic strategies.
Geographic performance divergence underscored the impact of macroeconomic uncertainties. Asia-invested hedge funds bore the brunt of trade tensions, with the Eurekahedge Asian Hedge Fund Index declining 1.61% year-to-date following a robust 17.1% gain in 2017. Japanese funds deteriorated further, posting 2.19% losses for the year. In contrast, Latin American fund managers outperformed with 3.89% gains in the first seven months, suggesting selective opportunities outside geopolitical stress zones. By July, the broader Eurekahedge Hedge Fund Index managed a modest 0.41% monthly advance, buoyed by North American and European equity performance driven by strong second-quarter corporate earnings.
The 2018 performance represents a structural challenge for the hedge fund industry, combining weak absolute returns with significant asset base contraction. The combination of limited positive returns, high redemption rates, and concentrated geographic weakness signals investor skepticism about hedge fund value proposition relative to public equities and lower-cost alternatives.
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