Rough Start in 2016 for Hedge Funds: January Redemptions, Losses Push Industry below $3 Trillion in Assets

Feb 29, 2016, 08:25 ET from eVestment

ATLANTA, Feb. 29, 2016 /PRNewswire/ -- After a tumultuous 2015, investors started off 2016 redeeming $21.5 billion from hedge funds in January, according to eVestment's January 2016 Hedge Fund Asset Flows Report. Those redemptions, coupled with performance losses of $43.2 billion in January, brought global hedge fund assets down $64.7 billion during the first month of the year, dropping total industry AUM to $2.96 trillion. This is the first time industry AUM has dropped below $3 trillion since the industry surpassed that milestone in May of 2014, according to eVestment's hedge fund research.

The $21.5 billion in redemptions in January reflects investors' short-term frustrations with hedge funds. However, most reports and surveys indicate high-net-worth and institutional investors will continue to consider and allocate to hedge funds and other alternatives over the coming year as there continue to be bright spots in the industry and investors continue to seek diversification. So January 2016 outflows are an interesting start to what could be an interesting year for the industry.

Some highlights from the report, according to report author Peter Laurelli, eVestment vice president and global head of research include:

  • Commodity hedge funds, which experienced poor performance in 2015 as commodities markets remained volatile and unpredictable, saw inflows of $1.2 billion in January, the fifth consecutive month of inflows into the segment after a series of redemptions going back to mid-2012. Hedge fund investors appear to believe there are significant opportunities on the commodity space.
  • Investor flows for emerging markets were slightly positive in January. Investors showed a preference for emerging market debt exposure entering the year, however there were pockets of allocations into funds focused on China, both in equity and debt markets.
  • Overall flows for funds investing in China were positive to start 2016. Funds reporting to eVestment for January had slight aggregate inflows of $41.8 million.
  • Event driven fund flows were highly negative in 2015, particularly toward the end of the year. This redemption pressure continued into January 2016 and it's clear that performance weighed heavily on investors' decisions.
  • There were similar themes in the long/short equity universe in January. At the aggregate level, the group experienced elevated redemptions in January and flows were most negative for funds that lost money in 2016.

While the aggregate picture is largely negative for hedge funds in January, eVestment's January 2016 Hedge Fund Asset Flows Report contains a new table that highlights January flows by fund size and by 2015 performance. The table illustrates the movement of assets in and out of certain strategies and the influence of performance and size on allocations and redemptions.

For instance, the table shows that long/short equity funds of less than $1 billion AUM and negative performance in 2015 lost, in aggregate, $1.97 billion in assets. On the other hand, long/short equity funds larger than $1 billion and with performance above 5% during 2015 saw $1.61 billion in aggregate inflows.

To download a full copy of the report, please click here or use this link

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SOURCE eVestment