PREQINQUARTERLY UPDATE:HEDGE FUNDSQ2 2019Insight on the quarter from the leading provider of alternative assets data

PerformanceBenchmarksFund ManagersFund Launches Fund Searches

Foreword

As geopolitical tensions and trade uncertainties intensify, the global macroeconomic outlook is increasingly uncertain. With bond yields falling, however, equities have rallied this year following a hellish Q4 2018. With these tailwinds, hedge funds have had an extremely strong start to 2019. But what does this all mean for investors?

As uncertainty rises on the one hand, on the other, valuations are strong in risk assets such as equities. So where to put capital: for protection or for growth? As we enter the last phase of the market cycle, investors may increasingly consider the active risk management that hedge funds can provide. Although hedge funds are not unaffected by downward market movements, it is their ability to mitigate losses and diversify risks that has produced attractive long-term Sharpe ratios. Now, perhaps, is the time for investors to look to hedge fund managers to help weather a future that looks increasingly stormy, and still access a healthy return.

Indeed, Preqin data indicates that investor appetite for hedge funds is increasing: we have recorded the highest ever quarterly number (220) of investor mandates in Q2 2019. Although net flows into the industry are negative for Q1 2019 (-$22.1bn), an uptick in fresh investment may plug some of the movement from the sector, if not spark a return to positive flows. At the very least, we are expecting high levels of activity as investors proactively redeem and reallocate capital.

The hedge fund sector represents a diverse array of products, instruments and regions; by employing multiple methodologies we can see significant performance changes between each and across quarters. As the market outlook grows increasingly divergent, building a portfolio that is diversified – strategically and geographically – may help investors to navigate all possible market directions. The trick will be finding the right managers from the 17,190+ funds currently open to investment.

Contents

All rights reserved. The entire contents of Preqin Quarterly Update: Hedge Funds, Q2 2019 are the Copyright of Preqin Ltd. No part of this publication or any information contained in it may be copied, transmitted by any electronic means, or stored in any electronic or other data storage medium, or printed or published in any document, report or publication, without the express prior written approval of Preqin Ltd. The information presented in Preqin Quarterly Update: Hedge Funds, Q2 2019 is for information purposes only and does not constitute and should not be construed as a solicitation or other offer, or recommendation to acquire or dispose of any investment or to engage in any other transaction, or as advice of any nature whatsoever. If the reader seeks advice rather than information then he should seek an independent financial advisor and hereby agrees that he will not hold Preqin Ltd. responsible in law or equity for any decisions of whatever nature the reader makes or refrains from making following its use of Preqin Quarterly Update: Hedge Funds, Q2 2019. While reasonable efforts have been made to obtain information from sources that are believed to be accurate, and to confirm the accuracy of such information wherever possible, Preqin Ltd. does not make any representation or warranty that the information or opinions contained in Preqin Quarterly Update: Hedge Funds, Q2 2019 are accurate, reliable, up to date or complete. Although every reasonable effort has been made to ensure the accuracy of this publication Preqin Ltd. does not accept any responsibility for any errors or omissions within Preqin Quarterly Update: Hedge Funds, Q2 2019 or for any expense or other loss alleged to have arisen in any way with a reader’s use of this publication.

3 Performance Update

4 Benchmarks

5 Largest Fund Managers

6 Fund Launches

7 Fund Searches

2

PREQIN QUARTERLY UPDATE: HEDGE FUNDS Q2 2019

Performance Update

The Preqin All-Strategies Hedge Fund benchmark has sustained its good performance from the beginning of the year, posting a Q2 return of 2.45% (Fig. 1). Funds focused on North America were the top performers geographically with a return of 2.58% for the quarter, closely followed by funds targeting emerging markets (+2.22%, Fig. 3). Asia-Pacific-focused funds were the only geographic benchmark to make a loss for this quarter: even with a respectable June return of 2.20%, the benchmark was just shy of positive with a return of -0.08%.

All top-level strategies managed a positive return for Q2; CTAs led the pack with a return of 3.84%. This figure marks the best quarterly return for CTAs since Q1 2015 (+4.57%). Credit and macro are the only strategies that avoided any negative monthly return during the quarter, both remaining positive in May when other strategies faltered. This left credit and macro strategies with reputable returns of 1.70% and 2.66% for Q2 respectively.

Fig. 1: Performance of Hedge Funds in Q2 2019 by Structure*

Source: Preqin Pro

2.45%1.95%

0.69%

2.09%

3.84% 3.83%

0%

1%

2%

3%

4%

Hed

ge F

und

Fund

of H

edge

Fund

s

UCI

TS H

edge

Fun

d

Alte

rnat

ive

Mut

ual

Fund

CTA

Fund

of C

TAs

Fig. 2: Performance of Hedge Funds vs. S&P 500 PR Index*

Source: Preqin Pro

0.57%

-4.87%

5.15%2.45% 3.07%

5.37%7.43%

5.46%7.20%

-13.97%

13.07%

3.79%8.22%

10.18%11.91%

8.46%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

Q3 2

018

Q4 2

018

Q1 2

019

Q2 2

019

12 M

onth

s

2-Ye

arAn

nual

ized

3-Ye

arAn

nual

ized

5-Ye

arAn

nual

ized

Hedge Funds S&P 500 PR Index

Net

Ret

urn

Fig. 3: Cumulative Returns of Hedge Funds in Q2 2019 by Geographic Focus*

Source: Preqin Pro

2.58%

1.12%

-0.08%

1.58%

2.22%

-2%

-1%

0%

1%

2%

3%

Apr-19 May-19 Jun-19North America EuropeAsia-Pacific Developed MarketsEmerging Markets

Cum

ulat

ive

Net

Ret

urn

Net

Ret

urn

*Please note, all performance information includes preliminary data for June 2019 based upon net returns reported to Preqin in early July 2019. Although stated trends and comparisons are not expected to alter significantly, final benchmark values are subject to change.

© Preqin Ltd. www.preqin.com 3

BenchmarksFig. 4: Summary of Q2 2019 Performance Benchmarks (Net Return, %)*

Benchmark Name Apr-19 May-19 Jun-19 Q2 2019 12 Months 3-Year Annualized

Hedge Funds 1.32 -1.00 2.14 2.45 3.07 7.43HF - Equity Strategies 1.67 -2.40 2.82 2.04 2.43 8.51HF - Event Driven Strategies 1.47 -2.03 2.09 1.49 1.65 7.45HF - Relative Value Strategies 0.34 -0.03 0.27 0.58 1.87 3.75HF - Macro Strategies 0.51 0.13 2.01 2.66 4.46 4.79HF - Multi-Strategy 1.84 -0.66 2.20 2.38 2.20 6.63HF - Credit Strategies 0.85 0.19 0.65 1.70 4.18 6.66Activist 1.55 -2.00 2.08 1.59 1.70 9.32Volatility 0.88 -0.36 1.98 2.51 4.27 7.50Discretionary 1.42 -1.59 2.64 2.45 3.20 8.17Systematic 1.06 -1.37 2.06 1.73 2.23 5.11HF - North America 1.64 -2.04 3.03 2.58 3.14 8.49HF - Europe 1.26 -0.93 0.80 1.12 -1.18 5.28HF - Asia-Pacific 0.44 -2.19 1.71 -0.08 -1.41 6.23HF - Developed Markets 1.75 -1.69 1.55 1.58 3.02 6.87HF - Emerging Markets 0.86 -0.83 2.20 2.22 6.92 8.78HF - USD 1.31 -1.28 2.71 2.73 2.98 7.75HF - EUR 0.72 -1.44 0.92 0.18 -2.58 2.44HF - GBP 1.28 -1.22 0.78 0.83 -2.63 3.56HF - JPY -0.02 -0.84 -0.32 -1.14 -6.16 3.58HF - BRL 0.54 0.77 1.85 3.18 16.01 15.18HF - Emerging (Less than $100mn) 1.38 -0.72 2.28 2.95 4.07 7.74HF - Small ($100-499mn) 1.08 -1.10 1.65 1.63 1.58 7.33HF - Medium ($500-999mn) 1.04 -1.13 2.30 2.21 3.69 7.79HF - Large ($1bn plus) 1.59 -0.37 2.59 3.83 5.82 7.70Funds of Hedge Funds 1.02 -0.75 1.68 1.95 1.13 3.96FOHF - Equity Strategies 1.39 -1.95 1.37 0.77 -1.00 4.33FOHF - Multi-Strategy 0.76 -0.47 1.87 2.16 1.28 3.77Funds of CTAs 1.89 -1.57 3.53 3.83 3.64 -0.74FOHF - USD 0.94 -0.76 1.93 2.11 1.66 4.73FOHF - EUR 0.56 -1.02 0.43 -0.04 -3.70 0.51Alternative Mutual Funds 1.13 -1.35 2.33 2.09 0.97 3.30UCITS 0.92 -1.78 1.58 0.69 -0.59 2.52UCITS - Equity Strategies 1.38 -2.92 2.21 0.60 -2.03 4.12UCITS - Relative Value Strategies 0.30 -0.88 0.82 0.23 -1.29 -0.02UCITS - Macro Strategies 1.24 -1.17 1.15 0.92 1.22 2.15UCITS - USD 1.13 -2.10 2.25 1.23 0.90 4.26UCITS - EUR 0.85 -1.85 1.41 0.39 -1.40 1.47CTAs 0.99 -0.27 3.11 3.84 3.45 1.32Discretionary -0.92 0.40 0.20 -0.33 -2.51 0.36Systematic 1.34 -0.56 3.66 4.45 4.87 0.63CTA - USD 1.07 -0.09 3.43 4.44 4.21 1.69CTA - EUR -0.38 -2.09 1.86 -0.65 -4.86 -2.24

Source: Preqin Pro

*Please note, all performance information includes preliminary data for June 2019 based upon net returns reported to Preqin in early July 2019. Although stated trends and comparisons are not expected to alter significantly, final benchmark values are subject to change.

4

PREQIN QUARTERLY UPDATE: HEDGE FUNDS Q2 2019

Largest Fund ManagersFig. 5: Largest Hedge Fund Managers by Assets under Management

Manager Location Year Established Assets under Management

Bridgewater Associates US 1975 $162.5bn as of 31 March 2019AQR Capital Management US 1998 $99.6bn as of 31 December 2018Man Group UK 1983 $80.5bn as of 31 March 2019Renaissance Technologies US 1982 $65.2bn as of 31 March 2019Two Sigma Investments US 2001 $60.0bn as of 31 March 2019 Millennium Management US 1989 $37.8bn as of 31 March 2019J.P. Morgan Asset Management US 1974 $35.5bn as of 31 March 2019Elliott Management US 1977 $34.0bn as of 31 December 2018Marshall Wace UK 1997 $33.5bn as of 1 April 2019BlackRock Alternative Investors US 2005 $31.2bn as of 31 March 2019Baupost Group US 1982 $31.0bn as of 30 June 2018D.E. Shaw & Co. US 1988 $29.9bn as of 1 April 2019Davidson Kempner Capital Management US 1990 $29.8bn as of 30 September 2018Adage Capital Management US 2001 $29.7bn as of 31 March 2019Citadel Advisors US 1990 $28.5bn as of 31 December 2018Farallon Capital Management US 1986 $27.3bn as of 31 March 2019Wellington Management US 1994 $26.0bn as of 31 March 2019Viking Global Investors US 1999 $26.0bn as of 31 December 2018Winton Capital Management UK 1997 $23.7bn as of 31 March 2019H2O Asset Management UK 2010 $23.2bn as of 31 March 2019

Source: Preqin Pro

Fig. 6: Largest Fund of Hedge Funds Managers by Assets under Management

Manager Location Year Established Assets under Management

Blackstone Alternative Asset Management US 1990 $80.0bn as of 31 March 2019UBS Hedge Fund Solutions US 2000 $39.1bn as of 31 March 2019Goldman Sachs Asset Management US 1997 $31.4bn as of 31 December 2018Grosvenor Capital Management US 1971 $27.3bn as of 30 June 2018BlackRock Alternative Advisors US 1995 $24.2bn as of 31 March 2019Morgan Stanley Investment Management US 2000 $21.6bn as of 31 March 2019EnTrust Global US 1971 $20.5bn as of 30 September 2018Lighthouse Partners US 1999 $14.7bn as of 31 December 2018Man FRM UK 1991 $14.2bn as of 31 March 2019Aberdeen Standard Investments UK 1998 $13.9bn as of 31 March 2019Rock Creek Group US 2002 $13.8bn as of 31 December 2018Credit Suisse Alternative Funds Solutions US 1998 $13.5bn as of 31 December 2018J.P. Morgan Alternative Asset Management US 1995 $12.3bn as of 31 March 2019Aetos Alternatives Management, LP US 2001 $11.3bn as of 31 March 2019PAAMCO Prisma US 2000 $11.2bn as of 31 March 2019UBP Alternative Investments Switzerland 1969 $10.1bn as of 31 December 2018HSBC Alternative Investments UK 1994 $10.0bn as of 31 March 2019K2 Advisors US 1994 $10.0bn as of 31 March 2019Pictet Alternative Advisors Switzerland 1991 $9.8bn as of 31 December 2018Mercer Global Investments Europe Ireland 2006 $9.3bn as of 31 March 2019

Source: Preqin Pro

© Preqin Ltd. www.preqin.com 5

In Q2 2019, there were 86 new hedge fund launches, of which 87% were traditional single-manager commingled funds (Fig. 7). No CTAs launched in Q2, which could be a knock-on effect of underperformance in 2018 (-3.96% vs. -3.01% for hedge funds).

Europe-based funds accounted for a greater proportion (36%) of hedge fund launches in Q2, up from 23% in Q1. Notable managers including Man Group, Algebris Investments and Credit Suisse all launched hedge fund strategies in the quarter.

New hedge funds have steadily shifted their allocations over the past four quarters from a global focus to more region-specific opportunities in developed markets, as Fig. 8 shows.

As stock markets in Europe and the US remained strong throughout Q2, equity strategies were once again the strategy most commonly deployed among new funds, representing 45% of launches (Fig. 9). In contrast, with more volatility potentially looming from

Brexit and an escalating US-China trade war, macro strategies – which represented 12% of launches in Q2 – could be better positioned to navigate volatile market events.

Fund Launches

Fig. 7: Hedge Fund Launches in Q2 2019 by Structure

Source: Preqin Pro

87%

9% 3%1% Hedge Fund

UCITS

Alternative MutualFund

Fund of HedgeFunds

CTA

Fig. 8: Hedge Fund Launches by Geographic Focus, Q3 2018 - Q2 2019

Source: Preqin Pro

11% 18% 20% 23%6%7% 5%

12%13%

10% 7%9%

4% 1% 6%4%

66% 64% 61% 52%

0%10%20%30%40%50%60%70%80%90%

100%

Q3 2018 Q4 2018 Q1 2019 Q2 2019

North America EuropeAsia-Pacific Emerging MarketsGlobal

Prop

ortio

n of

Fun

d La

unch

es

Fig. 9: Hedge Fund Launches by Top-Level Strategy, Q3 2018 - Q2 2019

Source: Preqin Pro

44% 39% 41% 45%

6% 8% 3%12%6% 5% 8%

11%13% 10% 10%

7%7% 10% 16%11%5% 5% 5%8% 14% 8% 8%9% 6% 8% 2%3% 2% 1% 4%

0%

20%

40%

60%

80%

100%

Q3 2018 Q4 2018 Q1 2019 Q2 2019Equity Strategies Macro StrategiesEvent Driven Strategies Credit StrategiesRelative Value Strategies Managed Futures/CTAMulti-Strategy Niche StrategiesAlternative Risk Premia

Prop

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Fun

d La

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es

6

PREQIN QUARTERLY UPDATE: HEDGE FUNDS Q2 2019

Over the course of Q2 2019, 220 investors issued hedge fund searches and mandates on Preqin Pro; just over half (51%) of these were for a single fund investment, which notably compares with 43% of searches issued in Q1 2019. Hedge fund investors appear to be taking a somewhat cautious approach in terms of capital outlay, with 79% planning to allocate less than $50mn in fresh capital over the next 12 months (Fig. 10).

Long/short equity remains the most preferred strategy among hedge fund investors, with 47% planning such investments in the year ahead (Fig. 11). Macro is also in favour with investors at present, as targeted by 34% – this is up from 20% in Q1 2019, suggesting that many are looking to position their portfolios more defensively in anticipation of a market correction.

In times of market uncertainty, it is little surprise that investors are prioritizing a diverse portfolio of investments in the next 12 months: 68% of hedge fund investors are looking for funds focused on global opportunities (Fig. 12).

Fund Searches

Fig. 10: Amount of Fresh Capital Investors Expect to Invest in Hedge Funds over the Next 12 Months

Source: Preqin Pro

79%

14%

5% 2% Less than$50mn

$50-99mn

$100-299mn

$300-599mn

$600mn orMore

Fig. 11: Core Strategies Targeted by Hedge Fund Investors over the Next 12 Months

Source: Preqin Pro

47%

34%31% 30%

18% 18% 16% 14% 13% 12%

0%5%

10%15%20%25%30%35%40%45%50%

Long

/Sho

rt E

quity

Mac

ro

Fund

of H

edge

Fun

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Mul

ti-St

rate

gy

Man

aged

Fut

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/CTA

Even

t Driv

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Long

/Sho

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redi

t

Equi

ty M

arke

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Spec

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ituat

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Fixe

d In

com

e

Prop

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Fun

d Se

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es

Fig. 12: Regions Targeted by Hedge Fund Investors over the Next 12 Months

Source: Preqin Pro

24%19% 15%

9%5%

68%

0%10%20%30%40%50%60%70%80%

Nor

th A

mer

ica

Euro

pe

Asia

-Pac

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Rest

of W

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Emer

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Mar

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Glob

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Prop

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© Preqin Ltd. www.preqin.com 7

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