Research

2016 Overview: Key Trends in Global Hedge Funds

Introduction

2016 has been quite a nerve-wrecking year as the global hedge fund industry anticipated and responded to a string of unexpected events. As such, market jitters were very much present for investors as the results of two major events which had happened - Brexit and the US Presidential Elections, had caught the world by surprise. The global hedge fund industry faced steep redemption pressure from investors this year, with total net outflows coming in at US$28.2 billion. On the other hand, managers posted good performance-based gains, up US$17.8 billion over the same period.

In terms of regional capital flows, North America continues to attract the bulk of assets within the global hedge fund industry, with North American hedge funds accounting for roughly 67% of total assets, or US$1.49 billion. Aside from trends in capital flows, fund population growth for the global hedge fund industry has also been its lowest on record, with the number of closures far outpacing the number of launches for the year. The global hedge fund industry currently oversees US$2.23 trillion in assets, managed by a total of 11,345 hedge funds.

Figure 1: Global hedge fund industry map

  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, most 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, as redemptions accounted 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 Eurozone crisis in 2011 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. For annual year 2015, net investor inflows accounted for the bulk of asset growth, with allocations totalling US$80.7 billion while a further US$27.9 billion was attributed to performance-based gains. As of November 2016 year-to-date, investors have redeemed US$28.3 billion from the hedge fund industry, while performance-based figures were positive over the same period, up US$17.8 billion.

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