Preqin: Redemptions Accelerated Through 2016 Despite Best Annual Return Since 2013

Feb 17 2017 | 12:01am ET

Hedge fund redemptions accelerated throughout 2016 despite the respectable 7.40% ultimately booked by its All-Strategies Hedge Fund benchmark, according to recent data published by industry observer Preqin.

Overall, the industry saw net asset outflows totaling $110 billion in 2016, while the rate of redemptions accelerated through the year; net outflows of $14 billion in Q1 reached $43 billion by Q4 2016. Moreover, every leading hedge fund strategy recorded net outflows for the year, while in contrast, CTAs recorded annual net inflows of $26 billion despite lackluster performance. 

Although there have been widespread redemptions across the industry, Preqin’s research shows a clear link between past performance and recent asset flows. The best performing funds in 2015 and H1 2016, for instance, were the most likely to see net inflows in Q4 2016. 

Other details from Preqin’s hedge fund asset flows research: 

  • The hedge fund industry has now seen five successive quarters of net outflows; net redemptions since Q4 
2015 have totaled $119 billion. 

  • Funds pursuing an equities strategy were the only sector to see net outflows in every quarter of 2016. Equities strategies ($50 billion), credit strategies ($28 billion), relative value strategies ($25 billion) and multi-strategy ($23 billion) funds account for the majority of 2016 outflows. 

  • The largest proportion of funds of every leading strategy saw net outflows. Of these, the majority of equities strategies (53%), macro strategies (56%) and niche strategies (60%) funds recorded net redemptions. 

  • The majority (58%) of funds with $1 billion or more in assets saw net outflows in Q4 2016, while only 26% saw inflows. Among the smallest funds with less than $100 million in assets, 49% recorded net Q4 outflows, and 35% saw inflows. 

  • Funds that recorded higher returns in 2015 were more likely to see net inflows in Q4 2016. Forty-four percent of funds that gained 5% or more the previous year saw net inflows, twice the proportion of funds that saw 2015 losses of more than 5%. 

  • Funds with higher performance in H1 2016 were more likely to see net Q4 inflows. However, even among funds that returned +5% or more, a greater proportion saw net outflows (46%) than saw inflows (40%) through the quarter. 

“Investors continued to withdraw capital from the hedge fund industry over 2016, as concerns around performance and fees grew,” said Amy Bensted, Preqin’s head of hedge fund products, who also noted that the 2016 performance of Preqin’s All-Strategies benchmark index was the best annual return since 2013. 

“With performance at the forefront of investors’ minds in 2016, Preqin’s data shows that those funds that posted superior performance in 2015 and the first half of 2016 saw greater inflows than funds which made smaller gains,” Bensted added.

Founded in 2003, Preqin is a key source of information for the alternative assets industry, providing data and analysis via online databases, publications and bespoke data requests. The firm recently launched Preqin Solutions, a cloud-based tool that streamlines the portfolio management process for private capital fund managers and investors, following the acquisition of Baxon Solutions in November 2016.

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