Research

2017 Key Trends in North American Hedge Funds

Introduction

Assets for the North American hedge fund industry grew by US$68.5 billion through 2017 September year-to-date, with the majority of the growth being contributed by a resurgence in investor inflows into the industry. Managers posted performance based gains of US$22.0 billion in 2017, while the Eurekahedge North American Hedge Fund Index was up 3.23% over the same period. Event Driven mandated hedge funds topped the performance table across strategic mandates returning 4.56% in 2017 thus far. Among geographic mandates, fund managers with exposure to Asia Pacific posted the best 2017 year-to-date performance by gaining 13.83%. This year has witnessed a strong turnaround for North American hedge fund managers as they experience the ‘Trumponomics’ effect and ride the market rally that has been ongoing since the end of 2016. However, with the Fed appearing to charter a more hawkish stance on rate hikes, it remains to be seen how long the current market lull can last and whether if Trump’s much touted fiscal plan can come to the rescue in time.

Figure 1a: Industry growth over the years

  North American hedge fund industry map

The pre-financial crisis period witnessed unprecedented growth in the North American hedge fund industry with 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 based gains in the same year.

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