Investors Pull $100B From Hedge Funds in 2016

Hedge funds lost more capital in 2016 than in any year since 2009, according to research from eVestment.

Over the last 12 months, investors withdrew nearly $180 billion from hedge funds while allocating roughly $70 billion, for total net redemptions of $106 billion, the report said.

This was only the third time on record that withdrawals outnumbered new investments in hedge funds, according to eVestment. The negative flows came in a year when multiple prominent investors, including pension funds and insurers, announced decisions to cut their hedge fund allocations.

“Throughout 2016, investors clearly reacted to widespread underperformance from 2015, but at the same time showed a willingness to allocate to products which performed well,” the report stated.

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Despite outflows, the hedge fund industry still ended the year with slightly higher assets under management, as performance gains of $119.9 billion offset investor withdrawals.

According to another eVestment report, hedge funds on average returned 5.34% last year, with distressed funds performing the best.

Investors may have “missed the boat” on hedge funds in 2016, Peter Laurelli, the firm’s global head of research, wrote in an accompanying blog.

“Since many institutional decisions take a long time to make (and unmake), results from 2015 caused many institutions to back away from hedge funds,” he wrote. “While some high-profile hedge funds stumbled badly in 2015 and 2016, overall, all major hedge fund segments produced positive returns in 2016.”

Nearly a year after its debut, the Institutional Limited Partners Association’s (ILPA) fee reporting template is showing signs of entrenchment within the private equity industry.

The template—an effort to drive uniformity and clarity in fee reporting practices—has made “significant progress” since it was released in January 2016, the ILPA has said, with adoption growing among both limited partners (LPs) and general partners (GPs).

As of November of last year, the ILPA said more than 125 member organizations had indicated they would use the template in negotiations with GPs over new fund commitments. A further 56 allocators and nine private equity managers had also publicly endorsed the template at that time, including the California Public Employees’ Retirement System, the Florida State Board of Administration, Apollo, and Blackstone.

And the list keeps growing, with private equity firm Searchlight Capital endorsing the template just last week.

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“We are pleased to adopt the ILPA fee reporting template,” founding partner Erol Uzumeri told Private Equity News in an interview published on Searchlight’s website. “We feel that transparency is an important part of the relationship between GPs and LPs, and we are committed to providing our investors comprehensive information that facilitates their monitoring activities.”

On Wednesday, Citco—a financial services company serving private equity firms—launched an automated reporting system specifically intended to help GPs comply with the ILPA’s fee disclosure requirements.

“Citco has a long-standing reputation for promoting more uniform and transparent reporting practices in the industry,” said Nick Perros, the firm’s head of private equity and real estate services. “The ILPA fee reporting tool makes it easier and more efficient for our clients to adhere to new transparency requirements.”

In a statement made in November, ILPA CEO Peter Freire said continued adoption of the template was “critically important” in the industry’s evolution toward “greater disclosure and transparency.”

“As the initiative builds a real head of steam with support from all corners of the asset class,” he said, “we are on the cusp of meaningful change that is in the long term best interests of all industry participants.”