The total assets under management of the hedge fund industry increased by US$125.9 billion in 2014, considerably less than in 2013 when industry assets grew by $240.4 billion, according to data provider Eurekahedge.
Net asset inflows of $37.7 billion last year were less than a third of the inflows recorded in 2013, largely because of $38.1 billion net outflows in the second half of 2014.
Performance of the average hedge funds fell behind the levels seen in the previous year. On average, funds returned 4.46 percent in the first 11 months of 2014 compared with the 8.76 percent return of the Eurekahedge index in 2013.
The importance of picking the right fund is confirmed by the performance of the top 10, 50 and 100 best performing hedge funds, which gained 128.33 percent, 65.32 percent and 48.47 percent on average, respectively, over the same period.
In particular, CTA/managed futures funds reported performance-based gains of $24 billion for the year – their highest annual gain since 2008. This was led by North American CTAs with year-to-date returns of 10 percent. In December, short energy positions once again dominated performance as oil prices continued to slide downward in response to falling global demand. Trading in currencies also contributed to performance as the final month of the year extended the rally in the U.S. dollar.
Regionally, Asian funds, excluding Japan, delivered the highest returns globally and were up 9.36 percent for the year, outperforming stocks, such as the MSCI Asia ex Japan Index, by almost 600 basis points. Most of the growth of Asia-focused funds came from exposure to Indian equities, which rose nearly 30 percent in the first 11 months of 2014.
Funds with a Japanese and North American mandate came in second and third place, delivering returns of 6.22 percent and 6.08 percent, respectively. Latin America-focused funds returned 2.34 percent, while European managers came in last place at 0.90 percent.
The year saw a contrast in economic performance in the U.S., where the economy continues its recovery and posts solid job gains, and in Europe, which continues to struggle with minimal growth.
Emerging economies also experienced a mixed performance. Many funds with emerging market investment mandates suffered losses due to a sharp drop in commodity prices, declining growth rates and currency depreciations. The asset weighted Mizuho-Eurekahedge Emerging Markets Hedge Fund Index lost another 3.37 percent in December. It was the index’s fourth straight month of losses, which meant returns for the year were negative (-4.58 percent).
Meanwhile, the Mizuho-Eurekahedge Asia Pacific Hedge Fund Index gained 5.56 percent for the year, the largest return among all regional mandates, due to its exposure to India and China.