The latest HFR Global Hedge Fund Industry Report showed that over $18.7 billion was withdrawn from the hedge fund industry’s largest firms in the fourth quarter of 2016. Still, steady performance gains managed to offset the continued investor outflows as the global hedge fund capital increased in Q4 2016, surpassing the $3 trillion milestone for the first time.
The HFR report showed that the previous record was in the second quarter of 2015, at a sum of $2.969 trillion.
In the fourth quarter of 2016, the total hedge fund industry capital reached a record $3.02 trillion. This was up $46.8 billion from the prior quarter. For the full year 2016 (FY16), total hedge fund industry capital increased by $121 billion, the largest annual increase since 2014.
The HFRI Fund Weighted Composite Index also rose by 5.5 percent in 2016, and it also tracked eight consecutive months of gains. Last year’s performance was the best return since 2013, topping that of global equities.
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Moreover, the fourth quarter of 2016 marked the fifth consecutive quarter of investor outflows. However, redemptions decreased to $18.7 billion, about 0.6% of total industry capital, compared to outflow of $28.2 billion in the Q3 2016 alone. Still, the performance overshadowed the redemptions.
Net inflows invested globally
In terms of stock and bond allocations, Equity hedge funds remains the largest concentration of strategy. This rose by $7.5 billion in Q4 and $20 billion for FY16, rising to a record $849 billion. Investor outflows were $6 billion in the quarter and $20.5 billion for 2016.
Fixed income-based Relative Value Arbitrage strategies saw an increase in total assets, with capital rising by $12.9 billion in Q4 and $43.9 billion for FY16 to end the year at $816.8 billion, the industry’s second largest strategy by assets.
Commenting on the findings, Kenneth J. Heinz, President of HFR, said: “Hedge fund assets surpassed a historic milestone to conclude 2016, as the industry posted the strongest asset increase in two years through the political turmoil of Brexit and the US Presidential election.”
“Growth occurred against a backdrop of mixed withdrawals, as investors and institutions positioned for continued geopolitical and economic uncertainty in 2017, including the new policies of the Trump administration, progression toward Brexit implementations and uncertain European elections in Netherlands, France, Germany and Italy. With global equities near record highs and US interest rates beginning to rise, funds tactically positioned for this environment are likely to benefit from these developments and lead industry performance in 2017,” he added.