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Hedge fund industry sees net outflows of USD34 billion in first half

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The hedge fund industry saw net outflows of USD34 billion over the first half of 2016, with the majority of outflows (USD20 billion) occurring in the second quarter, according to Preqin.

As a result, as of 30 June 2016 the hedge fund industry represented a total of USD3.11 trillion in assets under management, down from USD3.14 trillion at the end of 2015.
Among leading hedge fund strategies, credit and equity strategy funds suffered the greatest outflows in H1, totalling USD26 billion and USD25 billion respectively. By contrast, CTAs increased their AUM by 11 per cent over the first half of the year, recording the greatest inflows of any strategy (USD17 billion). Additionally, a surge of investor capital committed to multi-strategy funds in Q1 helped the strategy offset small net outflows in Q2, to register overall H1 inflows of USD11 billion.
Seventeen per cent of investors plan to increase their exposure to discretionary CTAs in H2 2016, the highest proportion of any strategy, while just 3 per cent plan to invest more in event driven strategies and funds of hedge funds. Only 9 per cent of investors plan to cut their exposure to activist funds, the lowest of any strategy. 

Those funds that performed better in 2015 were more likely to see inflows in Q2 2016; 43 per cent of funds that made gains of more than 5 per cent in 2015 recorded Q2 inflows, compared to less than a quarter (23 per cent) of those that suffered losses of 5 per cent or more through the year.
A higher proportion of hedge funds larger than USD1 billion recorded inflows (35 per cent), than those smaller funds (32 per cent). However, a higher proportion of larger funds also recorded outflows, with 44 per cent recording losses compared to 40 per cent of smaller funds. 

The greatest proportion of funds based in Europe saw inflows over Q2, with 35 per cent seeing net inflows and 38 per cent recording outflows. In contrast, only a quarter of firms based in North America registered inflows, while 44 per cent saw net outflows of investor capital.

“Growing concern from investors regarding the recent performance of the hedge fund sector has manifested as two consecutive quarters of net outflows, taking the total size of the industry to approximately USD3.1 trillion as of the end of H1 2016,” says Amy Bensted (pictured), head of hedge fund products at Preqin.
“Despite most leading hedge fund strategies witnessing outflows over the course of the first half of 2016, there were some bright spots, notably CTAs and multi-strategy funds, indicating that investors are seeing value in some areas of their hedge fund holdings in 2016. Performance, along with fees, looks set to be a key driver of change in the industry over the rest of 2016. Managers will be hoping that the recent run of better performance from March to July 2016 may help win back the favour of investors, and help the industry gain fresh capital inflows in the second half of the year.” 

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