Research

2016 Overview: Key Trends in North American Hedge Funds

Introduction

Assets for the North American hedge fund industry grew by US$19.1 billion for annual year 2016, with strength led by manager performance as opposed to investor interest. Managers posted performance-based gains of US$34.0 billion in 2016, with the Eurekahedge North American Hedge Fund Index was up 7.77% over the same period, outperforming regional peers. Event driven mandated hedge funds led performance across strategic mandates, up 18.19% in 2016 followed by distressed debt and multi-strategy hedge funds which gained 12.86% and 11.17% respectively. Among geographic mandates, North American managers with exposure to emerging markets led performance with gains of 21.04% in 2016. Going into 2017, an interesting year lies ahead for North American hedge fund managers as we await for ‘Trumponomics’ to take effect though it is too early to tell the extent to which campaign promises would be fulfilled. Economic data out of the US in early 2017 has been rather positive with inflation picking up pace, thus warranting the case for further tightening from the Fed. A series of fiscal and monetary stimulus announced by President Trump have so far led to stronger equity market performance in North America, though the extent of this rally remains to be seen.

Figure 1a: Industry growth over the years

  North American hedge fund industry growth over the years

 

The pre-financial crisis period witnessed unprecedented growth in the North American hedge fund industry with assets under management (AUM) growth from US$275 billion in 2000 to reach its peak at US$1.19 trillion in 2007. However, this period of growth was interrupted by the global financial crisis in 2008 with AUM declining close to 20% from its 2007 high. Investors redeemed US$94.2 billion in 2008 alone with five consecutive months of outflows ending December 2008. Unnerved investors continued to redeem their capital going into 2009 with a four-month uninterrupted outflows of US$135.8 billion in the period ending April 2009. With governments stepping to salvage a marred global economy, investor panic somewhat abated in the following months. However, the intensity of the redemptions in the first four months of 2009 left an indelible mark on the North American hedge fund industry for the rest of the year, with investors redeeming a total of US$100.7 billion for 2009 annual year, despite an impressive US$88.5 billion in performance-driven gains in the same year.

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