Hedge Funds Made Solid Returns Last Year - But Redemptions Accelerated

Tom Burroughes

20 February 2017

A seeming paradox has come to light in data about the world’s hedge fund sector – the industry clocked up solid returns but the pace of redemptions accelerated over the same period last year.

According to , the research firm, funds returned an average of 7.4 per cent during 2016. Outflows, meanwhile, totalled $110 billion, with the rate increasing as the year went by. In the first quarter, there were $14 billion of outflows, rising to $43 billion in the final three months of last year.

Every major strategy experienced outflows, with one standout exception - commodity trading advisors. CTAs logged net inflows of $26 billion, even though performance was lacklustre, Preqin said.

During the last year, total returns on the MSCI World Index of developed countries’ stocks, for example, were 7.51 per cent (capital growth plus reinvested dividends, as measured in dollars).

It is possible that redemptions were prompted by frustration after years of lacklustre gains, even though 2016 represented something of a bounceback by the sector. According to a recent report from Chicago-headquartered Hedge Fund Research, the global hedge fund industry held $3.02 trillion of assets at the end of 2016, rising $46.8 billion in the final three months of the year, the second straight quarterly record for sector capital. Total capital in the sector rose by $121 billion in 2016, HFR said.

Preqin said asset flows in general were linked to inflows and outflows, despite the pattern of recent redemptions.

“There is a clear link between past performance and recent asset flows, with the best performing funds in 2015 and H1 2016 being the most likely to see net inflows in Q4 2016,” the organisation said.

Funds pursuing an equities strategy were the only sector to see net outflows in every quarter of 2016. Equities strategies ($50 billion), credit strategies ($28 billion), relative value strategies ($25 billion) and multi-strategy ($23 billion) funds accounted for the majority of 2016 outflows.