Hedge fund investor redemptions accelerate through 2016

Despite hedge funds returning 7.4% over 2016, investors continued to withdraw capital over the year, according to a recent report by Preqin. The industry saw overall net asset outflows totalling US$110 billion in 2016. Preqin’s latest research finds that the rate of redemptions accelerated through the year, from net outflows of US$14 billion in Q1, to US$43 in Q4 2016.

Every leading hedge fund strategy recorded net outflows for the year. By contrast, CTAs recorded annual net inflows of US$26 billion despite lacklustre performance. Although there have been widespread redemptions across the industry, 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, according to Preqin.

Further, the hedge fund industry has now seen five successive quarters of net outflows. Net redemptions since Q4 2015 have totalled US$119 billion.

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

The largest proportion of funds of every leading strategy saw net outflows. Of these, the majority of equities strategies (53%), macro strategies (56%), and niche strategies (60%) funds recorded net redemptions.

Amy Bensted, head of hedge fund products says, “Investors continued to withdraw capital from the hedge fund industry over 2016, as concerns around performance and fees grew, despite the Preqin All-Strategies Hedge Fund benchmark recording its highest gain in three years. In total, hedge funds recorded outflows of US$110 billion in 2016; however, CTAs recorded net inflows of US$25 billion, as investors rebalanced in favour of these strategies at the start of the year.”

“With performance at the forefront of investors’ minds in 2016, those funds that posted superior performance in 2015 and the first half of 2016 saw greater inflows than funds which made smaller gains. Therefore, as we move forwards in 2017, it is likely that investors will continue to scrutinize the returns of funds, and are likely to continue to withdraw money from funds that have failed to meet their own individual or benchmark returns,” says Bensted.