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Alternative Market Briefing

Hedge funds assets reached reached all-time high end of 2019 despite record $15.4bn net outflows in Q4

Wednesday, February 26, 2020

Laxman Pai, Opalesque Asia:

Hedge fund industry assets under management (AUM) reached an all-time high at the end of 2019, with performance gains helping to offset negative capital flows and push total assets to $3.66tn, the industry has grown by 5.9% since the end of 2018.

According to Preqin, Q4 outflows of $15.4bn marked a fitting end to a year of net outflows in all four quarters, totaling $97.2bn. This means hedge funds extended their dismal run of outflows to seven consecutive quarters, back to Q2 2018.

Equity strategies attracted the greatest amount of capital (net inflows of $4.0bn) in the final quarter of the year, despite only 39% of equity strategies funds experiencing recording inflows. This the first quarter in which equity strategies have ended with net inflows since Q3 2018. Their AUM reached $955bn as of December 2019, up 12% since the end of 2018.

Preqin said in its Q4 2019 Hedge Fund Asset Flows that significant performance gains throughout 2019 (+14.45%) drove this upward, and now equity strategies are poised to become only the second top-level strategy to exceed $1tn in AUM.

Only relative value and niche strategies were able to join equities in generating positive net flows, with $1.3bn and $0.6bn respectively.

At the other end of the spectrum, asset flows totaled -$7.0bn in Q4 for credit strategies, the only quarter of the year in which the strategy recorded net outflows.

Despite the negative flows in the final quarter, credit strategies were the only top-level strategy to benefit from inflows across the year as a whole ($7.1bn).

Hedge funds managed in North America suffered the greatest capital withdrawal of any region in Q4 ($29.7bn), with just under half (49%) of all funds enduring outflows.

All other regions managed to generate inflows in the final quarter, with Asia-Pacific leading the way ($6.7bn).

Despite these improved headline figures in Q4, all regions suffered net outflows for the whole of 2019, with North America hit the hardest ($64.6bn).

As ever, past performance plays an integral part in a hedge fund manager's ability to attract additional capital.

Forty-six percent of funds that produced a return of +5.00% or greater on a three-year annualized basis recorded inflows in Q4 2019 (Fig. 8). This is in stark contrast to the 22% of funds that returned -5.00% or less than enjoyed inflows.

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