eVestment: Hedge Fund Industry AUM Regains $3T in May; Brexit Impact Looms

Jun 29 2016 | 10:03pm ET

The hedge fund industry’s assets climbed back above the psychologically-important $3 trillion hurdle for the first time this year in May as investor allocations were positive for the third month in the last four, according to new research from eVestment. 

However, at $3.014 billion, the market turmoil unleashed by United Kingdom’s vote to leave the European Union last week could have a heavy impact on industry assets and easily bring it back below the threshold, cautioned Peter Laurelli, eVestment’s vice president and global head of research, in the latest edition of the company’s Hedge Fund Asset Flows Report.

Redemption pressures from last year’s underperformers are abating as new money continues to come in to those who did well in 2015, eVestment said. Interest remains high for commodity funds, while pressure remains on event-driven funds and investors removed money from exposure to Europe, both in the form of investment region and as a firm domicile, leading up to the historic Brexit vote last week.

Key highlights of the report include:

  • Investors added $6.57 billion into hedge funds in May, the third month in the last four that the hedge fund industry has gained assets. 
  • Despite net inflows in three of the last four months, investor flows for 2016 remain negative for the year. In the first five months of 2016, investors have removed a net $8.5 billion from hedge funds.
  • Hedge funds domiciled in Europe saw assets fall $3.3 billion, while funds with Europe as an investment focus saw assets fall by $1.66 billion.
  • Interest in commodity funds was positive again in May. Investors added $1.2 billion during the month, the tenth month in the last 12 with positive investor sentiment.
  • Event driven funds are in the midst of significant redemption pressures, persisting since the end of 2014. In the 1.5-year span ending May 2016, investors removed $45.1 billion from event driven strategies. The current streak of six consecutive monthly outflows (and 14 in the last 18) is by far the worst period for universe outside of the financial crisis.
  • Activist hedge funds reporting to eVestment saw slight net inflows of $73 million in May, yet for the year have experienced aggregate redemptions near $2 billion.
  • Negative sentiment toward Asian funds continued into May, the sixth consecutive month during which investor sentiment has been negative.
  • Redemptions from China-focused funds reporting to eVestment were $164.5 million in May, much less than the level seen in March, and slightly less than the redemptions in April.
  • Macro funds continued to gain new assets ahead of the Brexit vote, despite exposures indicating many large funds were positioned for losses should the GBP depreciate – which it did to an extraordinary degree following the vote. 
  • Early reports for June returns indicate there were many winners within the managed futures universe amid the Brexit results. The universe has received more investor money than any other hedge fund strategy in 2016. 

Atlanta-based eVestment was founded in 2000 by Jim Minnick, Matt Crisp and Heath Wilson. The company boasts one of the most comprehensive global databases of traditional and alternative strategies and provides institutional investment data intelligence and analytic solutions to clients worldwide.

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