Hedge funds recorded positive net asset inflows totalling USD5.0 billion in Q2 2017, bringing total H1 2017 asset flows to USD24.7 billion, according to figures released by Preqin.
This marks a distinct contrast with 2016, which saw net industry outflows of USD110 billion across the year, although Q2 inflows do not approach the USD19.7 billion seen in Q1. With performance remaining robust in the second quarter, hedge fund industry assets under management grew to a record USD3.38 trillion, a 4.1 per cent increase from the beginning of 2017. However, capital flows were not even across the industry: while CTAs saw the greatest net inflows of USD10.4 billion in Q2, equity strategies funds recorded their sixth consecutive quarter of outflows, totalling USD12.4 billion.
CTA strategy funds brought in the largest amount of capital, recording net inflows of USD10.4 billion.
However, only 39 per cent of CTA vehicles experienced net inflows. Almost half (47 per cent) of CTA funds saw outflows this quarter, the largest proportion.
In fact, aside from niche strategies at least 38 per cent of funds of each leading strategy saw net outflows in Q2.
Asset flows also saw splits by geographic regions: hedge funds operated by Europe- and North America-based managers saw inflows of USD12.6 billion and USD10.3 billion respectively. However, Asia-Pacific and Rest of World-based vehicles saw outflows of USD15 billion and USD3.4 billion respectively.
There remains a strong correlation between past fund performance and inflows. Forty-six percent of hedge funds with a 5.00 per cent or greater three-year annualised return to the end of 2016 saw inflows in Q2.
At the other end of the scale, 61 per cent of funds with three-year annualised returns of -5.00 per cent or less saw outflows this quarter.
Amy Bensted (pictured), Head of Hedge Fund Products at Preqin, says: “The hedge fund industry has recorded its second consecutive quarter of net asset inflows in Q2, reinforcing a departure from the five consecutive quarters of outflows recorded in Q4 2015 – Q4 2016. This might be taken as an encouraging sign that investor sentiment towards the industry is starting to thaw, and that dissatisfaction is reducing in the face of consistent positive performance.”
“However, even though the level of net asset flows remains positive over the second quarter of the year, it was smaller than in Q1 2017, and many managers are still seeing net capital outflows from their funds. Even among funds with robust long-term performance, significant proportions report that investors are removing capital from their vehicles. This may indicate that while investor confidence in hedge funds is returning, institutions are consolidating capital around a smaller number of fund manager relationships.”
