Although hedge funds recorded outflows ($4.6bn) for a second consecutive quarter in Q3 2018, strong performance counteracted these capital withdrawals to grow industry AUM to $3.62tn, marking a 1.1% increase since the end of 2017.
Industry outflows in Q3 2018 were predominately driven by macro strategies funds (-$9.0bn) – the only top-level strategy tracked by Preqin to have experienced net outflows across all three quarters of 2018, totalling $15.3bn as at September 2018. Credit and relative value strategies funds also witnessed outflows of $3.5bn and $4.7bn respectively. However, outflows were not recorded across all hedge fund strategies: multi-strategy funds attracted a net inflow of $5.0bn, despite only 33% of funds experiencing inflows in comparison to 41% recording outflows. Elsewhere, substantial inflows were seen in event driven strategies (+$3.6bn) and CTAs (+$3.0bn).
North America-based fund managers continued to enjoy success in attracting capital in Q3 with inflows of $3.0bn (Fig. 2). This influx of capital, accompanied by strong returns over the quarter, helped to increase the region’s aggregate industry assets to $2.73tn. This marks 4% growth this year so far, with the region now accounting for approximately three-quarters of the entire industry’s assets. Europe was the only other top-level region to record inflows (+$2.0bn) over the quarter; however, poor regional performance hindered its total AUM, which shrunk over the quarter to $706bn. Outflows continued for Rest of World in Q3 (-$6.6bn) following significant withdrawals in Q2 also (-$16.2bn). Net outflows for the region currently stand at $15.8bn in 2018 YTD.
Preqin data suggests that the largest funds struggled to attract capital in Q3 2018, with only 27% of funds of $1bn or more in size generating inflows, the smallest proportion of any fund size bracket. The largest proportion (43%) of funds recording inflows held between $500mn and $999mn in AUM; however, such funds also recorded the largest proportion (48%) of outflows.
As ever, performance is key to attracting further capital investment. Among funds that have generated returns of 5.00% or greater over a three-year period, 38% experienced inflows. This compares to 23% of funds that posted returns of less than -5.00% over the same period. This trend is even more prevalent when looking at funds that have performed particularly strongly in the first half of 2018: over half of funds that posted returns greater than 5.00% over H1 2018 recorded inflows in the period.
Download the full Hedge Fund Asset Flows, Q3 2018 report to see more data on strategy, fund size, manager headquarters and performance.