Preqin: Hedge Fund Industry AUM Tops $3.24T As Performance Outweighs Outflows

Nov 22 2016 | 7:54pm ET

Despite a rocky start to the year, solid performance gains through much of 2016 has outweighed persistent redemption pressures to bring total hedge fund industry assets under management to $3.24 trillion as of the end of the third quarter, according to new asset flow data from Preqin.

The 2.9% increase comes in spite of net outflows of $66.7 billion, Preqin’s research shows, leaving positive returns across most strategies as the central driver for AUM growth. The industry has posted gains of 5.44% through the end of Q3, Preqin said.

Strong performance for equity and macro strategies funds overcame net investor redemptions to see their AUM grow in the first three quarters of the year. Meanwhile, credit, relative value and multi-strategy funds all saw their total assets fall. 

Interestingly, CTAs have seen net inflows of $27 billion in 2016 YTD, growing AUM by 13.5% to $253 billion despite lackluster gains of only 0.97% through Q3, and relatively poor performance since. 

The gain in AUM does not mask the continued redemption pressure apparent in the industry, Preqin added. The extended run of positive performance enjoyed by hedge funds since March has been offset by continued investor redemptions across the industry, with outflows of $33 billion through the end of Q3, which when added to the outflows in the first half of the year, bring total industry outflows to a record $66.7 billion through the first three quarters of 2016. 

Other key highlights from Preqin’s latest Hedge Fund Spotlight report:

  • Credit and equity strategies have seen Q1-Q3 outflows totaling $24 billion and $27 billion, respectively, while multi-strategy funds saw negative asset flows of $25 billion through Q3, more than negating net inflows seen in Q1. 
  • Flows by Strategy: More than half (52%) of relative value hedge funds saw net inflows in Q3, while a further 13% saw no change in their assets. In contrast, just over half (51%) of macro strategies vehicles suffered outflows through the quarter, the highest proportion of any leading strategy. 
  • Flows by Fund Size: Fewer smaller hedge funds have seen investor redemptions; 38% of funds smaller than $100 million saw outflows in Q3, compared to 49% of funds larger than $1 billion. Similarly, 45% of smaller funds saw inflows through the quarter, compared to 37% of the largest funds. 
  • Flows by Region: A higher proportion of funds based in North America saw outflows (42%) than managed to attract inflows (40%). By contrast, fund managers based in all other regions saw more inflows than outflows. 
  • Flows by Performance: The best performing hedge funds in H1 attracted the greatest inflows in Q3. The majority (52%) of funds that returned 5% or greater in H1 2016 recorded net Q3 inflows, while 34% saw outflows. By contrast, just 31% of vehicles that saw losses greater than -5% through the period registered net inflows, with the majority (51%) seeing net outflows.

“2016 has been a difficult year for the hedge fund industry [as] ongoing investor concerns about the performance of the asset class and the fees that funds charge have made both raising and retaining investor capital increasingly challenging for hedge fund managers,” said Amy Bensted, head of hedge fund products for Preqin. “As a result, outflows have increased over each of the three quarters in 2016 to date, and nearly every leading strategy has seen net redemptions from investors.’ 

“However, strong industry performance and the resulting growth in total industry assets under management strike a more positive note,” Bensted added. “The Preqin All-Strategies Hedge Fund benchmark has added positive returns throughout Q2 and Q3, and the industry has enjoyed its largest performance gain since 2012-13. Therefore, while investors may continue to pull capital out of hedge funds in the short term, if managers can continue this run of strong returns…and prove their role in institutional portfolios, then we may see inflows return to the industry in 2017.”

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