HFR: Industry Assets Hit Record Despite $28B In Hedge Fund Redemptions

Oct 20 2016 | 8:17pm ET

Hedge fund industry assets hit a new record in the third quarter, according to new data from Hedge Fund Research, but they did so entirely on the strength of performance gains as net redemptions totaled the largest quarterly outflow since 2009.

Investors redeemed a net $28 billion in the quarter, HFR said in its latest Global Hedge Fund Industry Report, while performance gains rose $73.5 billion to bring total industry assets up to $2.972 trillion globally. The 3Q16 hedge fund asset level eclipses the previous record of $2.969 trillion set in 2Q15.

Redemptions totaled the largest quarterly outflow since Q2 2009 and brought YTD industry outflows to $51.5 billion, the company reported. 

HFR is the latest hedge fund industry observer to note that redemptions are rivaling the levels seen during the financial crisis. Earlier this week, Eurekahedge also noted that redemptions during the quarter had brought year-to-date fund flows to the steepest net negative reading since 2009.

Investor outflows and liquidations were concentrated in several of the industry’s largest and most well-established firms; nearly $22 billion of net capital was redeemed or returned from firms with over $5 billion AUM. Firms managing between $1 and 5 billion saw net outflows of $7.4 billion, while firms managing less than $1 billion experienced a small net inflow.

Other key asset-related observations from HFR’s report:

  • Total capital invested in Equity Hedge funds, the industry’s largest concentration of strategy AUM, increased by $27.6 billion to $841.6 billion despite investor outflows of $9.4 billion. Performance-based asset increases were led by Fundamental Value funds, which grew by $15.7 billion in 3Q, bringing total sub-strategy AUM to $461 billion, and representing the largest area of sub-strategy capital. Quantitative Directional and Multi-Strategy funds received combined investor inflows of $2.8 billion. 
  • Fixed income-based Relative Value Arbitrage (RVA) strategies also experienced an increase in total assets, with capital rising by $19.5 billion to $804 billion. The strategy’s performance-based asset gain was partially offset by investor outflows of $4.1 billion in 3Q. Total capital invested in RVA: Multi-Strategy funds increased by $10.5 billion to $488 billion, the industry’s largest sub-strategy by AUM. 
  • Event-Driven (ED) strategies experienced a large net outflow of $15.4 billion for the quarter, bringing YTD outflows to $27.4 billion. Despite these outflows, and as a result of strong performance, total capital in ED increased by $19.4 billion to $762.4 billion in 3Q. ED outflows were concentrated in Special Situations, which experienced net outflows of $7.5 billion, although strong performance gains increased total capital in these funds to $356.7 billion, the largest ED sub-strategy. 
  • Led by investor inflows of $2 billion into quantitative, trend-following CTA strategies, total capital in Macro hedge funds increased by $7 billion to $563.6 billion in 3Q. Macro inflows totaled $800 million in 3Q, with total strategy inflows partially offset by an outflow of $2.6 billion in Discretionary sub-strategies. 

“The hedge fund performance environment improved in 3Q, despite investor redemptions, the continued decline in the British Pound Sterling as a result of Brexit, and an uncertain macroeconomic outlook across most regions,” stated Kenneth Heinz, president of HFR.

“Total hedge fund industry capital has reached a record high as the U.S. economy prepares to conclude an extended interest rate cycle," he added. "This cycle has de-sensitized many investors to risks in financial markets, while suppressing asset volatility and hedge fund performance. As rates are allowed to normalize, fundamental mean reversion across many specialized long/short strategies is likely to drive strong performance and industry growth into 2017.”

HFR also announced the launch of HFR IndexScope, the new platform for researching HFRI Indices and constituent data. The new product enables filtering of historical HFRI constituents and performance dating back to 2008 by strategy, sub-strategy, regional focus, asset size, performance and more. 

Established in 1992, HFR produces the HFRI, HFRX and HFRU Indices, industry benchmarks for global hedge fund performance. HFR calculates over 100 indices of hedge fund performance ranging from industry-aggregate levels down to specific, niche areas of sub-strategy and regional investment focus.

In Depth

PAAMCO: Will Inflation Deflate the Asset Bubble?

Jan 30 2018 | 9:49pm ET

As the U.S. shifts from monetary stimulus to fiscal stimulus, market pricing should...


CFA Institute To Add Computer Science To Exam Curriculum

May 24 2017 | 9:25pm ET

Starting in 2019, financial industry executives sitting for the coveted Chartered...

Guest Contributor

Boost Hedge Fund Marketing ROI By Raising Your ROO

Feb 14 2018 | 9:57pm ET

Tasked with delivering returns on client capital, a common dilemma for many alternative...