The 2008 global financial crisis saw long-only absolute return funds lose $84bn in AuM. Since then, the industry has experienced steady growth, hitting a peak of $293bn in 2017.
This works out to a compound annual growth rate of 11.9% over the 9-year period. The positive trend reversed in 2018 as the sector recorded $33.5bn of AuM decline, largely driven by $20.6bn of net outflows as investor risk sentiment was dampened due to the poor performance, as shown by the Eurekahedge Long-Only Absolute Return Fund Index recording losses of 10.4% in 2018.
The index performed much better in 2019, gaining 16.8%. However, growth was still negative due to outflows totaling $21.6bn, resulting in an AuM decline of $4.0bn.
Despite a poor start to 2020 due to the pandemic, the absolute return fund sector recorded AuM growth of $9bn for the year. This was driven by $14bn of performance-based growth as fund managers benefitted from the accommodating monetary and fiscal policies implemented by governments to support their economies from the fallout of the pandemic.
Positive momentum continued until the end of 2021 as AuM hit $272, driven by $10.8bn of performance-based growth despite $3.6bn of net outflows. Absolute return funds faced a challenging H1 2022 as the war between Russia and Ukraine, aggressive monetary tightening to combat high inflation and the potential for recession influenced investor sentiment. As of the end of June 2022, the absolute return fund sector has recorded an AuM decline of $44bn YTD and currently stands at $228bn.
- As of the end of June 2022, the absolute return fund sector has recorded an AuM decline of $44bn YTD and currently stands at $228bn.
- Since December 1999, the Eurekahedge Long-Only Absolute Return Fund Index has generated an annualized return of 7.7%, outperforming the Eurekahedge Fund of Funds Index and the S&P 500.
- Over one-third of long-only absolute return funds are based in the US and UK. Around 51% of the currently active long-only absolute return funds have a track record of at least 12 years. Only around 9% of funds survive more than 20 years.
- The average long/short equity hedge fund declined 7.9%, widely considered a disappointing return, but superior to the 13.3% fall in the S&P 500 Index.
- Over the past three, five and 10 years, tech-focused long/short equity funds consistently generated the highest Sharpe ratios.
- Long/short equity hedge funds and tech-focused long/short equity hedge funds have both experienced a trend of declining 36-month rolling alpha since 2006.