INVESTING/PORTFOLIO STRATEGIES

Hedge fund assets end 2016 over $3 trillion despite $106 billion in net outflows

Aggregated hedge fund industry assets grew a slight 0.73% to $3.04 trillion in 2016 thanks to performance gains of $119.9 billion, estimated research specialist eVestment.

For the year, hedge funds saw $106 billion in net outflows, according to eVestment's Hedge Fund Industry Asset Flow Report released Friday. Hedge funds reported $23.7 billion in net outflows in December and $43.2 billion in the fourth quarter.

The quarter ended Dec. 31 was the fifth consecutive quarter of net outflows

By comparison, 2015 net hedge fund inflows totaled $11.1 billion.

All but one hedge fund strategy in eVestment's hedge fund universe experienced net outflows in 2016, with event-driven funds losing the most, $38.5 billion, followed by long/short equity, $24.6 billion; and global macro, $13.7 billion.

The sole strategy to attract positive net inflows for the 12 months ended Dec. 31 were managed futures, with $10.3 billion. But eVestment researchers noted in the report that the managed futures category “unfortunately … also produced the worst average returns of any major strategy and December/Q4 redemptions reflect investors' dissatisfaction.”

Managed futures returned 0.81% for the year ended Dec. 31 — the lowest return among all strategies — while distressed hedge funds produced the highest return of 11.5%.

Investors redeemed $5.4 billion from managed futures funds in December and a total of $10.6 billion in the quarter ended Dec. 31.

“Investors' allocation decisions in 2015 and 2016 proved to be unfortunate as winning strategies faced the largest redemptions and vice versa,” the report's authors said, adding “it's clear (that) a swath of investors are uncertain how to utilize the industry's available talent.”