Preqin: European Hedge Fund Industry Contracted In 2016

Jun 27 2017 | 11:25pm ET

The European hedge fund market contracted last year as redemptions continued and AUM declined, according to new data from Preqin, although performance has been positive in eleven of the past twelve months. 

Overall AUM in the European hedge fund industry fell in 2016, with net asset outflows continuing through Q1/2017, Preqin said. As of the end of 2015, hedge fund managers in the region held $674 billion in AUM; this declined to $657 billion a year later. 

At the same time, net investor outflows from Europe-based fund managers reached $35 billion, with a further $9 billion recorded in Q1/2017, Preqin’s research reveals. However, performance among Europe hedge funds has shown signs of recovery from difficulties seen in late 2015 and early 2016; . In the 12 months to the end of May 2017, funds in the region have made overall gains of 10.28%. 

Other highlight from Preqin’s Hedge Funds in Europe Report:

  • Traditional single-manager commingled vehicles represent less than half (47%) of all hedge funds in Europe, with UCITS funds accounting for over a quarter (26%).
  • Of Europe-based investors, private sector pension funds account for the largest proportion (21%) of capital invested, with insurance companies committing a fifth of all capital.
  • The UK hedge fund industry is the largest in Europe, with $472 billion in AUM, 47% of the assets held by managers based in the region.
  • The three-year annualized return of all UK-based hedge funds stands at 3.08% as of the end of March, on par with the Preqin Europe Hedge Fund benchmark (+3.11%).
  • Switzerland is the second most prominent European market after the UK. There are 241 active hedge fund investors, 123 hedge fund managers and 55 fund of hedge fund managers based in the country.
  • Sweden-based investors have the highest mean current allocation to hedge funds of any European country, with institutions there committing 13.4% of their AUM to the industry, above the Europe-based average of 10.3%.
  • Of the ten European countries featured in Preqin’s report, Spain-based hedge funds charge the lowest average performance fee (16.55%). 

  • Over half (56%) of Europe-based UCITS funds are domiciled in Luxembourg. 

“Europe is the second largest market for hedge funds globally, accounting for approximately a fifth of all hedge fund assets under management,” noted Amy Bensted, Head of Hedge Fund Products, in the report. “The region has undergone significant change in recent years; new regulatory developments in the aftermath of the global financial crisis have affected how fund managers operate and market their funds to investors. 

“Further uncertainty surrounding the long-term prospects for the European economy, and the potential impact of Britain’s exit from the European Union also raise the prospect of significant developments in the years ahead,” Bensted added. “However, the region remains a major center for the industry, with mature and diverse markets. As such, although it has faced short-term difficulties, the longer term outlook for Europe is still one of growth and development.”

Founded in 2003, Preqin is a leading source of information for the alternative assets industry, providing data and analysis via online databases, publications and bespoke data requests. The company's Hedge Fund Online service is a leading source of intelligence on the hedge fund industry, with performance information for over 16,000 hedge funds across strategies and geographies. More than 47,000 professionals in 90 nations use the company’s products. 

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