Research

2014 Overview: Key Trends in North American Hedge Funds

Introduction

North American hedge funds recorded excellent growth over the past 13 months despite a slowdown in the pace of expansion since the second half of 2014, raising the region’s share of assets under management (AUM) by another US$93.8 billion to approximately two thirds of the global hedge fund industry. As of January 2015, the total AUM of the North American hedge fund industry is closing in on the US$1.45 trillion mark and stands at US$1.447 trillion managed by a total of 5,267 hedge funds.

Since the start of the new millennium, the North American hedge fund industry has been on a course of rapid expansion. Beginning with accelerated growth pre-2008, the sector suffered a setback during the global financial crisis followed by a sustained recovery post-2009 that has seen AUM crossing the pre-crisis high. In a period of seven years, AUM grew from a base of US$275 billion in 2000 to US$1,189 billion by end of 2007 – a trend accompanied by strong launch activity which more than doubled the size of the North American hedge fund industry.

Figure 1: Industry growth over the years
 

The advent of the global financial crisis proved an anti-climax as AUM declined almost 20% from their 2007 peak to US$963 billion by 2009. While launch activity was far from muted during the crisis years, it was matched by a steep rise in hedge fund liquidations which resulted in a stagnation of the industry’s size. Since then the industry has recovered, aided by strong asset inflows and performance-based gains which occurred against the backdrop of a mild economic recovery in the US and an increasing demand for hedge fund exposure by investors looking to reduce the volatility of their portfolios.

2010 and 2011 recorded strong asset inflows worth US$116.6 billion into the industry despite increased risk aversion in the markets towards the end of 2011 as the Eurozone crisis came centre stage while US lost its AAA credit rating, which then slowed to US$6.7 billion in 2012 despite strong performance-based gains of US$47.0 billion.

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