Hedge fund industry grows in 2015 despite concerns over performance
Preqin’s 2016 Global Hedge Fund Report finds that 2015 was another challenging year for the industry, during which the Preqin All-Strategies Hedge Fund benchmark recorded gains of 2.02 per cent, compared with 4.65 per cent in 2014.
Despite this, total industry AUM increased by USD178 billion to reach USD3.2 trillion as of November. Thirty-seven percent of surveyed fund managers said that they have seen an increase in institutional capital in 2015, and 59 per cent reported that their total AUM had increased. Overall the industry saw net inflows of USD71.5 billion, but this gain occurred entirely in H1, as H2 2015 saw net outflows of USD4.8 billion across the industry.
Additionally, many investors have expressed concerns about performance going into 2016. A third of surveyed investors said that returns in 2015 had not met their expectations, and the same proportion stated their confidence in the ability of hedge funds to meet their portfolio objectives had decreased over 2015. For the first time, a greater proportion of investors reported to Preqin that they plan to reduce the amount of capital they invest in hedge funds (32 per cent) than plan to increase it (25 per cent) in 2016.
There were 829 hedge fund launches in 2015, and 695 closures, a net increase of 134. Preqin now tracks in excess of 15,000 active hedge funds run by 6,020 fund managers globally.
North America still represents the largest part of the hedge fund industry, holding USD2.31 trillion in total assets. Europe holds USD685 billion in AUM, while Asia-Pacific funds represent USD159 billion.
Despite concerns over performance, fund managers are generally upbeat about the year ahead. Sixty-three percent have a positive outlook for the industry in 2016, while 72 per cent think that industry AUM will continue to increase over the coming year.
Equity strategies saw the greatest net inflows in 2015, adding USD57.1 billion of fresh capital in the year. Both relative value and macro strategies funds saw net outflows, of USD18.3 billion and USD25.6 billion respectively.
The greatest proportion of investors cited performance (35 per cent) and transparency (21 per cent) as key issues moving into 2016. These issues were also cited as key drivers of change in the industry in 2016 by 33 per cent and 40 per cent of fund managers respectively.
“2015 proved to be a challenging year for the hedge fund sector, as it recorded its lowest annual performance since 2011,” says Amy Bensted (pictured), head of hedge fund products at Preqin. “Although hedge funds outperformed the S&P 500 over the year, this poor performance did not go unnoticed by investors: approximately a third of institutional investors reported to Preqin that hedge funds failed to meet their expectations in 2015.
“2016 could prove difficult for fund managers as fundraising looks set to become more challenging. However, if hedge funds can navigate the changeable economic environment, and continue to show better performance in times when traditional markets are struggling, then the value of hedge funds may be proved to those investors that are currently taking a cautious approach to the asset class.”