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Outflows Persist for Hedge Funds into Q4 2018

by Jamie Fisher

  • 21 Feb 2019
  • HF

Outflows continued for hedge funds in Q4 2018 for the third consecutive quarter. Investors withdrew a net $45.1bn from the industry, leading to net outflows of $33.9bn in 2018, the highest annual outflow witnessed since 2016 (-$109.8bn). Accompanied by poor performance across the industry, these capital withdrawals have culminated in industry assets under management (AUM) shrinking to $3.45tn, a reduction of 3.5% since the end of 2017.

Industry outflows in Q4 were predominantly driven by both equity (-$20.9bn) and CTA strategies (-$21.3bn), which recorded the highest outflows across any top-level strategy tracked by Preqin. Over 2018, equity strategies experienced the greatest capital withdrawal (-$23.7bn) bringing AUM for the strategy down to $852.8bn. Only multi-strategy funds and niche strategies were able to achieve net inflows in Q4, of $1.4bn and $7.0bn respectively. This has helped to grow the niche strategies sector by 17.7% since the end of 2017 to $29.4bn in AUM.

Preqin data suggests only hedge fund managers based in North America successfully attracted capital in Q4 2018 (+$10.1bn), bringing net inflows in 2018 to $50.4bn. Europe-based hedge fund managers continued to struggle to attract new capital in Q4 (-$26.5bn), as only 21% of funds achieved inflows while a significant 67% witnessed a net withdrawal. Elsewhere, despite 42% of Rest of World-based funds achieving inflows in Q4, an aggregate $11.9bn left the region; net asset flows in Rest of World in 2018 amounted to -$27.7bn, and AUM dropped by 47.1% over the year to $33.4bn amid subdued returns.

As ever, performance is a crucial factor in fund managers’ ability to attract new capital. Of the funds generating returns of 5.00% or greater in H1 2018, 45% experienced inflows while 41% failed to attract capital. By comparison, only 28% of funds that returned less than -5.00% achieved an inflow, and 58% recorded net outflows. Similar trends are also present when examining a longer timeframe, such as three-year annualized returns.

For more charts and analysis on Q4 asset flows, please take a look at our factsheet, or browse Insights for more of our recent research.

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