Hedge fund assets up to USD2.90tn in Q4 despite performance declines

Date: Thursday, January 21, 2016
Author: HedgeWeek

otal global hedge fund capital rose to USD2.90 trillion in Q4, as financial market volatility, driven by concerns about slowing Chinese growth and energy market weakness, accelerated into year-end, according to the latest HFR Global Hedge Fund Industry Report. 

Hedge fund capital increased by over USD22.8 billion on the previous quarter with the performance asset gain offsetting a small investor net capital outflow of USD1.52 billion in Q415, the first quarterly net outflow since Q411. 

The HFRI Fund Weighted Composite Index® posted a gain of 0.8 per cent in Q415, but declined 1.0 per cent for full-year 2015, only the fourth calendar year decline since inception in 1990. The HFRI Asset Weighted Composite Index advanced 0.5 per cent in Q415, and was essentially flat for the year, posting a narrow decline of 0.04 per cent.

For the full year 2015, total hedge fund capital increased by USD51.7 billion, rising to a record of USD2.97 trillion at mid-year before falling in the volatile Q3, but rising again to conclude the year at USD2.90 trillion. Investor net inflows totalled USD43.8 billion for 2015, with inflows in the first three quarters tempered slightly by the outflow of USD1.52 billion in Q415. 

Inflows by firm size remained concentrated in the industry’s largest firms, with firms managing greater than USD5 billion in assets receiving inflows of USD3.2 billion in Q4. Investors withdrew USD2.8 billion from firms managing between USD1 billion to USD5 billion in Q4, and withdrew a combined USD1.9 billion from firms with less than USD1 billion in AUM in the quarter. 

Although this represents a reversal of the flows by firm size trend in Q3, the report reveals that for the full year 2015, firms with greater than USD5 billion in AUM received inflows of USD31.2 billion, while firms managing between USD1 billion to USD5 billion received inflows of USD6.0 billion, and firms with AUM below USD1 billion also received inflows of USD6.5 billion. 

Macro and CTA hedge funds led strategy inflows for Q415, with these receiving USD2.5 billion in new capital for the quarter, bringing Macro to a narrow inflow of USD900 million for 2015, increasing total Macro capital to USD550 billion. The HFRI Macro (Total) Index declined by 1.15 per cent in 2015, though larger Macro funds demonstrated strong performance relative to smaller funds, with the HFRI Macro Index-Asset Weighted gaining 0.72 per cent for 2015. Macro sub-strategy flows were led by quantitative, trend-following Systematic Diversified CTA funds, which received inflows of USD1.7 billion in Q415. 

Equity Hedge strategies led capital inflows in 2015, receiving USD25.8 billion for the full year, including USD2.0 billion in Q4, bringing total Equity Hedge capital to USD829 billion, the industry’s largest strategy concentration of capital. Similar to Macro, Equity Hedge also posted mixed performance for 2015, with the HFRI Equity Hedge Index declining -0.8 per cent for the year, while the HFRI Equity Hedge Index-Asset Weighted gained +1.53 per cent, topping the performance of US equities. 

Both Event Driven and fixed income-based Relative Value Arbitrage (RVA) strategies experienced capital outflows in Q415 but inflows for the full year. Event Driven strategies suffered outflows of USD2.2 billion in Q4, reducing the full year net inflow to USD8.7 billion and bringing total Event Driven capital to USD745 billion. The HFRI Event Driven Index posted a decline of 3.3 per cent for 2015, with larger ED funds having a negative impact on overall performance, as the HFRI Event Driven Index- Asset Weighted fell 4.7 per cent for the year. Relative Value Arbitrage strategies experienced outflows of USD3.8 billion in Q415, bringing 2015 inflows to USD8.4 billion and total RVA capital globally to USD773 billion. The HFRI Relative Value Index posted a narrow decline of 0.26 per cent for 2015, though larger RVA funds demonstrated strong relative performance, with the HFRI Relative Value Arbitrage Index-Asset Weighted gaining 1.2 per cent for 2015. 

“The global hedge fund industry expanded in 2015 as global financial markets entered into an important and uncertain transitional macroeconomic environment, resulting in acceleration of asset volatility and wide performance dispersion across hedge fund strategies,” says Kenneth J Heinz (pictured), President of HFR. “While financial market dislocations have contributed to mixed performance across the most directional energy- and credit-sensitive strategies, many larger hedge fund firms had positioned conservatively for the reversal of the equity beta trend, resulting in positive cap-weighted strategy performance. With clear acceleration of these transitional trends into early 2016, it is likely that investors will continue to exhibit strong preference for low beta exposures and leading firms into 2016.”