European Hedge Funds Underwhelm as Managers Misjudge Bull Run

UNITED KINGDOM – The European hedge funds failed to impress this year, with some quarters pointing to the uncertainty of the UK leaving the EU as one of the reasons for the decline.

Hedge funds in Europe only had a 7.55% return this year. According to research company eVestment, the funds are drastically behind the S&P 500 and STOXX Europe 600 benchmarks. The former advanced by 25.3% while the latter gained 20.7% in the same time frame. The Bloomberg Equity Hedge Fund Index also rose by 10%.

The UK and European hedge funds accumulated $759 billion in assets in November. It plummeted from the $772 billion of 2018 and the $805 billion level it was in in 2017.

Several hedge fund managers believe some of the strategies they utilized were foiled by Brexit issues. Others say they misjudged the bull run.

According to Patrick Ghali of Sussex Partners, it’s hard for managers to “outperform a roaring bull year.” He claimed that many traders and financial advisers didn’t expect the stock market to perform the way it did this year. While investors were initially cautious when the year started, they began taking more risks as the year progressed.

Some advisors also believe that the wariness that pervaded hedge funds in 2018 apparently spilled over this year as well. This was seen in lower fees and outflows as managers worried about paying substantial fees for an investment that’s performing sluggishly.

According to a JPMorgan report, the typical management fee went down 0.17 points to 1.44%. Performance fees also 1.06 points to 18.34%. Some managers also had difficulties raising enough capital.

It’s not just Europe that underperformed; the whole industry was decidedly unimpressive this year. Data collated by the Hedge Fund Research Inc. indicated that over 4,000 funds have been dissolved in the last five years. The sector is set to record more closures than launches now.

To underscore the seriousness of the situation, veteran hedge fund billionaires Jeffrey Vinik and Louis Bacon returned their clients’ capital this year. It was a move that shocked the $3 trillion hedge industry.

Analysts are saying there are many reasons why these veterans are now calling it quits. Some simply grew tired and wanted to try something new while others couldn’t raise enough capital. There were also those who couldn’t keep up with the long running bull market.

Stephen Roberts told clients his decision to shut down his Horseman European Select fund was because he was heading to a different direction. He also noted that everything comes to an end.