Research

2017 Key Trends in Global Hedge Funds

Introduction

The global hedge fund industry is on track to post a solid recovery in 2017as underlying markets trend upwards against the backdrop of subdued volatility in asset prices. The Trump presidency which was expected to spook market sentiment has been surprisingly constrained so far with regards to delivering on the campaign agenda, in particular policies pertaining to global trade. Rather, expectations of a fiscal expansion in the US lend support to markets early during the year while his first tour as President of the United States helped calm nerves overseas, barring the odd-handshakes and other presidential antics. Risk appetite generally improved during the year, with equity long bias strategies posting double digit gains whilst returns for macro and systematic managed futures strategies languished in a low volatility regime. Meanwhile, emerging market assets performed strongly in 1H 2017 outperforming developed markets counterparts with managers investing with a dedicated India, China and Brazil mandate reporting strong double-digit year-to-date returns. Events in the developed world contributed to pockets of heightened volatility in the markets, especially in the days leading up to the French presidential elections with investors switching to safe haven assets. Overall 2017 is turning out to be a good year for the global hedge fund industry which has seen a steady increase in its asset base after experiencing steep redemption pressure in 2016, with total asset growth totalling US$88.5 billion for the first six months of 2017. This growth is attributed to good performance-based gains which account for US$33.0 billion, together with investor inflows accounting for US$55.6 billion.

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 with their asset growing by US$58.87 billion in the first half of 2017. On the other hand, European hedge funds grew their asset base by US$18.30 billion while Asia ex- Japan managers grew their asset base by US$7.36 billion over the same period. The global hedge fund industry currently oversees US$2.31 trillion in assets, managed by a total of 11,347 hedge funds globally.

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; 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, while 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.

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