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Hedge Funds Bleed Assets in First Half: Preqin

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Hedge funds experienced net outflows of $34 billion in the first half, $20 billion of which occurred in the second quarter, according to estimates released last week by the alternatives data provider Preqin.

“Growing concern from investors regarding the recent performance of the hedge fund sector has manifested as two consecutive quarters of net outflows, taking the total size of the industry to approximately $3.1 trillion as of the end of H1 2016,” Preqin’s head of hedge fund products, Amy Bensted, said in a statement.

Most major hedge fund strategies had net outflows in the first half, with credit and equity strategy funds taking the biggest hits: $26 billion and $25 billion, respectively.

Macro strategies hemorrhaged $17 billion and niche strategies $1.7 billion.

There were also bright spots in the Preqin report. CTAs had net inflows of $16.6 billion, a 10.9% increase over the first six months of the year.

In addition, multi-strategy funds ended the first half with net inflows of $11.2 billion on the strength of the first quarter’s $12.8 billion in positive flows, which offset an outflow of $1.6 billion in the second quarter.

Relative value strategies had a net asset gain of $1.7 billion in the first half, and event-driven strategies a $700 million gain.

Preqin found that investors were becoming increasingly impatient with poor performance. Forty-seven percent of funds that suffered losses of 5% or more in 2015 recorded net outflows in the second quarter of this year, and only 23% had net inflows.

The outflow pace increased in the second quarter, with 52% of funds that lost 5% or more in the first quarter recording net outflows.

In contrast, 43% of funds that gained more than 5% last year were rewarded with net inflows in the first half, while 34% had net outflows.

According to the report, 35% of hedge funds with more than $1 billion under management reported inflows at the end of the first half, compared with 32% of funds with less than $100 million in assets.

At the same time, 44% of the big funds recorded losses, versus 40% of the smaller ones.

Only 25% of North America-based funds enjoyed net inflows in the first half, compared with 35% of those based in Europe and 34% in Asia/Pacific.

Forty-four percent of North American funds had net outflows in the first half, compared with 38% of European funds and 43% of Asia/Pacific ones.

Although investors surveyed by Preqin reported a general dissatisfaction with recent hedge fund performance, they expressed varying levels of satisfaction with different hedge fund strategies.

Ninety-two percent of investors felt systematic CTAs had met their expectations, while 63% said the same about discretionary CTAs and 50% about credit strategies.

At the other end of the spectrum, no investors surveyed felt that their activist investments had met their expectations, and only 12% approved of funds of funds.

Seventeen percent of investors said they planned to increase their exposure to discretionary CTAs in the second half of this year and another 71% to maintain their current allocation.

Just 3% planned to invest more in event-driven funds and funds of funds, though 79% said they would maintain their current exposure to both strategies.

“Performance, along with fees, looks set to be a key driver of change in the industry over the rest of 2016,” Bensted said.

“Managers will be hoping that the recent run of better performance from March to July may help win back the favor of investors, and help the industry gain fresh capital inflows in the second half of the year.”

— Check out Some Foundations, Endowments Re-evaluating Hedge Fund Use on ThinkAdvisor.