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Amy Bensted, Preqin

Hedge fund industry returns to net inflows in 2017

2017 marked the first time the Preqin All-Strategies Hedge Fund benchmark has seen a full calendar year of positive monthly returns.

Full-year performance of 11.41 per cent for the industry – the highest level since 2013 – has improved investor confidence in the asset class, and prompted four quarters of net inflows of capital. Seventy-two per cent of investors feel their hedge fund portfolios met or exceeded expectations in 2017, a reversal from the year before, in which 66 per cent of investors thought they had underperformed.
This confidence has led to net inflows of almost USD50 billion across the year, and has helped push industry assets under management to a new record of USD3.55 trillion. However, this has not been felt equally across the industry – while CTAs saw inflows of USD23 billion, equity strategies funds s
Investors have noticed improved performance: 72 per cent reported that their portfolios have met or exceeded expectations in 2017, up from 34 per cent that said the same a year prior.
As such, they have committed fresh capital to the industry, and overall hedge funds saw net inflows of USD49 billion through the year.
Net inflows and strong performance have helped push assets under management to record highs. The industry grew 9.2 per cent in 2017 to a new record of USD3.55 trillion.
Looking ahead, 32 per cent of investors expect performance in 2018 to improve from 2017’s returns, while 28 per cent expect performance to be worse.
Nearly half (45 per cent) believe that equity markets have reached a peak, and so 37 per cent of investors are looking to position their portfolios more defensively in 2018. 

This may explain why defensive strategies such as CTAs and macro strategies funds saw the largest net inflows in 2017 (USD23 billion and USD17 billion respectively), while equity strategies saw the largest outflows (USD33 billion).
Amy Bensted (pictured), Head of Hedge Fund Products at Preqin, says: “2017 was a year of redemption for hedge funds, in contrast with the ‘year of redemptions’ experienced in 2016. Improved performance has stoked investor confidence, and although a sizeable minority still reported themselves unhappy, the majority are satisfied with the returns their portfolios have provided. As a result, they have begun to commit fresh capital to the asset class again, and the industry saw four quarters of positive net inflows. This has helped push assets under management well beyond USD3.5 trillion, and it seems as though funds have regained some of the momentum that was lost in the latter stages of 2015.”
“However, there are still significant challenges that lie ahead for the industry. Although hedge funds marked net inflows as a whole, there was a clear weighting towards defensive strategies like CTAs and macro funds, and away from equities approaches. Almost half of investors feel that equity markets peaked in 2017, and are looking to adjust their portfolios accordingly. More generally, the modest and irregular size of quarterly inflows points to an investor universe that is not yet fully convinced of hedge funds’ value, and these issues are likely to persist well into 2018.” 

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