Preqin: 1H/17 Inflows of $24.7B Drives Hedge Fund Industry AUM To Record $3.38T

Aug 29 2017 | 6:30pm ET

Hedge fund industry inflows continued for the second consecutive quarter in Q2 2017, according to data provider Preqin, but at a slower pace than the torrid levels seen in the first quarter of the year.

Hedge funds saw positive asset inflows of $5 billion in Q2, Preqin’s research shows, compared with some $19.7 billion during Q1. Moreover, the quarter's inflows were not distributed equally across strategies - CTAs saw the greatest net inflows in Q2 at $10.2 billion, while long/short equity funds recorded $12.4 billion in net outflows for their sixth consecutive quarter of net redemptions.

The data illustrates the general lag between strategy performance and allocation or redemption decisions, as CTAs have broadly underperformed in recent months while long/short equity managers are carrying a +3.6% gain year-to-date, according to data from Lyxor Asset Management. 

Nonetheless, the second-quarter tally brings first-half 2017 asset flows to +24.7 billion, Preqin said, contrasting sharply with 2016’s full year net outflow of $110 billion. With returns in the industry broadly positive during the half, total hedge fund industry assets under management has risen 4.1% since January to a record $3.38 trillion, the company added.

Other key observations from Preqin’s Q2 Hedge Fund Asset Flows report:

  • Despite the overall segment’s strong inflows during the quarter, only 39% of CTA vehicles experienced net asset gains. Almost half (47%) of CTA funds saw outflows this quarter, the largest proportion. 

  • Aside from niche strategies at least 38% of funds of each leading strategy saw net outflows in Q2. 

  • Asset flows also saw splits by geographic regions: hedge funds operated by Europe- and North America-based managers saw inflows of $12.6 billion and $10.3 billion, respectively. However, Asia-Pacific- and ROW-based vehicles saw outflows of $15 billion and $3.4 billion, respectively. 

  • There remains a strong correlation between past fund performance and inflows. Forty-six percent of hedge funds with a 5% or greater three-year annualized return to the end of 2016 saw inflows in Q2. Conversely, 61% of funds with three-year annualized returns of -5% or worse saw outflows. 

“The hedge fund industry recorded its second consecutive quarter of net asset inflows in Q2, reinforcing a departure from the five consecutive quarters of outflows recorded in Q4 2015 – Q4 2016,” said Amy Bensted, Preqin’s head of hedge fund products, in a statement. “This might be taken as an encouraging sign that investor sentiment towards the industry is starting to thaw, and that dissatisfaction is reducing in the face of consistent positive performance. 

“However, even though the level of net asset flows remains positive over the second quarter of the year, it was smaller than in Q1 2017 and many managers are still seeing net capital outflows,” Benstead continued. “Even among funds with robust long-term performance, significant proportions report that investors are removing capital from their vehicles. This may indicate that while investor confidence in hedge funds is returning, institutions are consolidating capital around a smaller number of fund manager relationships.” 

Founded in 2003, Preqin is a leading source of information for the alternative assets industry, providing data and analysis via online databases, publications and bespoke data requests. The company's Hedge Fund Online service is a leading source of intelligence on the hedge fund industry, with performance information for over 16,000 hedge funds across strategies and geographies. More than 47,000 professionals in 90 nations use the company’s products. 

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