Assets held by hedge fund managers increased by 2.9 per cent in the first three quarters of 2016, taking total industry AUM to USD3.24 trillion, according to Preqin.
Across most strategies, strong returns have been the central driver of asset growth, with the industry posting gains of 5.44 per cent through Q1-Q3 2016.
Strong performance for equity and macro strategies funds overcame net investor redemptions to see their AUM grow in the first three quarters of the year, while credit, relative value and multi-strategy funds all saw their total assets fall.
By contrast, though, CTAs have seen net inflows of USD27 billion in 2016 YTD, growing the strategy’s AUM by 13.5 per cent to reach USD253 billion despite only making gains of 0.97 per cent across the first three quarters.
The extended run of positive performance that hedge funds have posted since March has been offset by continued investor redemptions across the industry. Hedge funds saw outflows of USD33 billion through Q3, compounding outflows incurred through Q1 and Q2 to record total industry outflows of USD67 billion through the first three quarters of 2016. Credit and equity strategies have seen Q1-Q3 outflows totalling USD24 billion and USD27 billion respectively, while multi-strategy funds saw negative asset flows of USD25 billion through Q3, more than negating net inflows seen in Q1.
More than half (52 per cent) of relative value hedge funds saw net inflows in Q3, while a further 13 per cent saw no change in their assets. In contrast, just over half (51 per cent) of macro strategies vehicles suffered outflows through the quarter, the highest proportion of any leading strategy.
Fewer smaller hedge funds have seen investor redemptions; 38 per cent of funds smaller than USD100 million saw outflows in Q3, compared to 49 per cent of funds larger than USD1 billion. Similarly, 45 per cent of smaller funds saw inflows through the quarter, compared to 37 per cent of the largest funds.
A higher proportion of funds based in North America saw outflows (42 per cent) than managed to attract inflows (40 per cent). By contrast, fund managers based in all other regions saw more inflows than outflows.
The best performing hedge funds in H1 attracted the greatest inflows in Q3. The majority (52 per cent) of funds that returned 5.00 per cent or greater in H1 2016 recorded net Q3 inflows, while 34 per cent saw outflows. By contrast, just 31 per cent of vehicles that saw losses greater than -5.00 per cent through the period registered net inflows, with the majority (51 per cent) seeing net outflows.
“2016 has been a difficult year for the hedge fund industry; ongoing investor concerns about the performance of the asset class and the fees that funds charge have made both raising and retaining investor capital increasingly challenging for hedge fund managers,” says Amy Bensted (pictured), head of hedge fund products at Preqin. “As a result, outflows have increased over each of the three quarters in 2016 to- date, and nearly every leading strategy has seen net redemptions from investors.
“However, strong industry performance and the resulting growth in total industry assets under management strike a more positive note. The Preqin All-Strategies Hedge Fund benchmark has added positive returns throughout Q2 and Q3, and the industry has enjoyed its largest performance gain since 2012-13. Therefore, while investors may continue to pull capital out of hedge funds in the short term, if managers can continue this run of strong returns, particularly in unpredictable markets, and prove their role in institutional portfolios, then we may see inflows return to the industry in 2017.”