eVestment: Hedge Fund Aggregate Gains +5.34% in 2016 Despite Redemption Pressures

Jan 11 2017 | 10:43pm ET

All the major hedge fund segments tracked by eVestment ended 2016 in positive territory, driving the firm's aggregate hedge fund metric to its best return since 2013 despite pervasive investor dissatisfaction that culled some $83 billion in redemptions from the industry through last November.

The broad hedge fund industry, as measured by eVestment’s Hedge Fund Aggregate index, returned 1.07% in December, 0.78% in Q4 and +5.34% for the full year 2016, the company said in its latest Hedge Fund Industry Performance Report. This is a significant rebound following a -0.72% aggregate return in 2015, which set the stage for investors during 2016 – unhappy with low returns and chafing at high fees – to redeem significant capital from the industry.

Global hedge fund assets crested $3 trillion for the first time in 2014, eVestment added, but poor results in 2015 and the very slow decision cycles of institutional investment managers meant that redemptions based on that year’s disappointing results actually took place last year. 

However, those moves may have been premature, writes eVestment in the report. While some high-profile hedge funds stumbled badly in 2015 and 2016, overall, all major hedge fund segments produced positive returns in 2016, with several beating equal weighted equity/fixed-income benchmarks.

Some interesting points from the report:

  • After lagging most of the industry in 2015, distressed hedge funds capitalized on opportunities in the energy sector last year to emerge as 2016’s best primary strategy, returning +11.5% for the year, compared to returning -7.82% in 2015.
  • Continued strong performance in the stock market helped lead event-driven / activist hedge funds to a second place finish for the year, up +10.43%, compared to a weaker, but still positive +4.37% return in 2015.
  • Other strong performers were the overall event-driven hedge fund strategies, returning +8.91% (versus -2.76% in 2015); directional credit funds, at +7.32% compared to +0.37%; and relative value credit funds, which gained +6.44% vs. -0.57%.
  • In terms of regional exposures, Brazil focused hedge funds had the best story to tell, bouncing back from a dismal -31.23% return in 2015 to a stellar +33.29% return in 2016.
  • Russia-focused funds saw a large bump as well, returning +28.57% in 2016, compared to +4.27% in 2015. China-focused funds showed a big change in the other direction, coming in at -5.82% for the year, compared to +9.73% in 2015.
  • Managed futures were the biggest disappointment in 2016, returning just 0.81%, not much improvement over the -1.62% turned in for 2015. After a strong 2014 and a strong start to 2015, investors began placing bets with large managed futures funds, which proved incorrect. Large managed futures funds, with -3.63% returns for the year, were the only major segment to show overall negative returns for 2016.
  • Elsewhere, market neutral equity funds gained +1.72%, broad multi-strategy funds +2.02%, and macro hedge funds +2.12%.
  • Activists finished the year with the best Q4 performance of any primary strategy and ended just behind distressed as the best hedge fund strategy in 2016. 
  • Credit hedge funds had their second worst year on record in 2015, but generally rebounded well in 2016. The universe gained more than $200 billion in new assets between 2010-2014 but was plagued by redemption pressures in 2015 and 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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