Research

2015 Overview: Key Trends in Global Hedge Funds

Introduction

The world economy had a shaky start in 2016 with investors flocking to safe haven assets amid a volatile market environment. The global hedge fund industry’s asset base contracted US$20.1 billion as of February 2016 year-to-date, with performance-driven losses a main contributor to this contraction. Performance-based losses stood at US$16.6 billion in the first two months of 2016 alone, while investor outflows of US$3.5 billion were recorded. The assets under management (AUM) of the global hedge fund industry currently stand at US$2.22 trillion, managed by a total of 11390 hedge funds. Going into 2016, further easing seems to be a main theme as central bankers worldwide have largely adopted accommodative monetary policies in an attempt to re-energise the current lethargy of the world economy.

Over the past year, the global hedge fund industry has seen its assets grow by US$108.7 billion, with gains in assets largely attributed to investor allocations seen especially in the second and third quarters of 2015 where investor allocations stood at US$66.4 billion during this period alone. As at end of 2015, investor inflows accounted for US$80.7 billion of the total growth in assets with European hedge funds taking up half of the share of total investor inflows during the year.

Figure 1a: Industry growth over the years
 

The industry witnessed impressive asset growth in the pre-financial crisis era with AUM tripling within a span of four years since the year 2000. AUM for the global hedge fund industry peaked in 2007 to reach its pre-financial crisis high of US$1.88 trillion, managed by a total of 9,313 hedge funds. By mid-2008, the industry’s asset base grew over US$400 billion to breach the US$1.95 trillion mark; much of this is attributed to strong investor inflows. Between 2007 and mid-2008 alone, investor inflows stood at US$239.9 billion while performance-based gains stood at US$168.4 billion. The financial crisis of 2008 affected the industry’s strength with the global hedge fund industry registering a steep decline of US$413.6 billion in 2008 alone, with redemptions accounting for over half of the losses. Investor redemptions continued in 2009 totalling US$122.9 billion despite excellent performance-based gains of US$131.5 billion during the year.

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