Investors Appear to Warm to Hedge Fund Industry After Strong 2016

24 Feb

Investors Appear to Warm to Hedge Fund Industry After Strong 2016

Investors pulled another $5.2 billion from hedge funds in January 2017, according to the just-released January 2017 eVestment Hedge Fund Asset Flows Report. And while $5 billion is not insignificant, it pales in comparison to the $19.3 billion investors pulled from hedge funds in January 2016, meaning investors may be starting 2017 with a positive view of these funds following some strong 2016 hedge fund performance.

Overall hedge fund industry AUM in January stood at $3.033 trillion and 49% of hedge fund managers reported positive inflows during the past month. Some other interesting points in the current report, according to eVestment Global Head of Research Peter Laurelli, include:

  • The largest redemptions in January came from managed futures funds, with flows of -$3.67 billion. This brings managed futures flows for the past three months to -$13.19 billion.
  • Event driven and relative value credit funds also saw big outflows in January 2017, with flows of -$2.81 billion and -$2.69 billion respectively.
  • Multi-strategy funds had the biggest inflows among primary hedge fund strategies, with +$3.80 billion, bringing their three-month total to +$4.31 billion.
  • A slightly negative flow of -$0.80 billion among emerging markets hedge funds in January ended a two-month period of inflows to those funds.

2016 was a difficult year for the industry. But with 2016 performance coming in strong, eVestment’s outlook for 2017 asset flows hinges on two main influences. First, the wave, or lack thereof, of inflows from institutional portfolios as a result of portfolio shifts in exposure to hedge funds. This had been a primary driver of inflows in 2013-2015, and faded in 2016. And the second influence: the impact of prior year’s performance on the withdrawal, allocation or redistribution of assets around the industry.

Last year’s negative environment was the result of the first influence being near flat, and prior year (2015) returns being negative. While it is not clear for 2017 if the first influence will shift to positive, it is clear that the second influence is nowhere near as negative as it was in 2016.

To download a full copy of the report, please click here.