Research

2016 Key Trends in Global Hedge Funds

Introduction

The first half of 2016 was certainly eventful as financial markets anticipated and reacted to global developments. Emerging market assets performed strongly towards the second quarter of the year as oil and commodity prices showed signs of recovery. Events in the developed world have also added to heightened volatility in the markets, especially in the days leading up to the Brexit referendum with investors fleeing to safe haven assets.

Despite considerable market turbulence during the first half of the year, global hedge funds have seen a steady increase in their asset base, with much of the growth in assets coming from investor allocations. For the first half of the year, the industry recorded total net inflows of US$14.5 billion, though in aggregate managers posted performance-based losses of US$10.2 billion. In terms of regional breakdown, North America continues to attract the bulk of assets under management (AUM) for the hedge fund industry, with roughly 66% of total assets overseen by managers in the region. The global hedge fund industry currently oversees US$2.25 trillion in AUM, managed by 11,278 hedge funds.

Figure 1: Global hedge fund industry map
 

Over the past 10 years, the global hedge fund industry witnessed varying market conditions with periods of growth, stress and rebound. In the years prior to the 2008 financial crisis, optimism in hedge funds was seen by its accelerated growth both in the industry AUM and the number of funds. In 2006, the global hedge fund industry was managed by 8,694 funds with total assets worth US$1.54 trillion. By mid-2008, the industry’s asset base grew over US$400 billion to breach the US$1.95 trillion mark, much of which 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 losses of US$413.6 billion at the end of 2008, with redemptions accounting for over half of the losses. Investor redemptions continued in 2009 totalling over US$122.9 billion despite excellent performance-based gains of US$131.5 billion during the year.

Hedge funds managed to ride on excellent performance-based gains between 2010 and 2014 despite going through redemption pressures which were strong during the 2011 Eurozone crisis and in times of market uncertainty in the second half of 2014. Despite uninterrupted redemptions from July 2014 to December 2014, global hedge funds registered excellent asset growth totalling up to US$121.0 billion, with performance-based gains accounting for 71% of this growth.

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