Hedge funds lost $32 billion due to geopolitical unrest, inflation and the Ukraine War in the second quarter of 2022, according to a research by data provider Preqin.
The $4.1 trillion hedge fund market experienced the biggest outflows it has ever seen since the coronavirus epidemic began in the first quarter of 2020.
According to Preqin, the decreases might continue as central banks hike interest rates.
To combat inflation, central banks in North America and Europe raised interest rates in September. In the meantime, a rise in U.K. government bond yields damaged British pension funds. This pushed some of them to ask the businesses they manage money for emergency funding. When rates increase, bond prices decline.
According to the research, the ongoing global unrest “placed significant pressure on markets and caused investors to review their allocations.”
Investors have not stayed, either, as a result of the second quarter’s disappointing returns. Hedge funds with a North American focus saw returns decrease by 8.82%, while their European counterparts fared only marginally better with declines of 5.78%. Returns for funds with an Asian Pacific region emphasis decreased by 4.45%.
Nevertheless, the majority of withdrawals came from hedge funds with a concentration on Europe. They saw $28.4 billion in the second quarter and $49.2 billion overall for the first half of 2022.
Additionally, Europe’s longer-term performance trends lagged behind those of its counterparts in the United States and the Asia-Pacific (APAC) region.
The U.S. and APAC-focused funds generated returns of 8.5% and 6.90%, respectively, over the previous five years, up through the first half of 2022. On the other hand, European-focused hedge funds only generated 3.5%, according to the study.
Hedge funds are prepared to perform at their highest level now that market stress has returned, particularly those that use methods that leverage macroeconomic information to trade market patterns, according to the report.
