Home ListingJanuary 4, 2016

Hedge Fund Flows Collapse in 2015

Demand for credit strategies “evaporated” in the second half the year—but asset owners are still forecast to put new money to work in the sector.

Reported by Featured Author

Hedge fund inflows declined by roughly 40% in 2015 compared to the previous year, as the under-fire sector continued to post poor performance.

Data firm eVestment estimated a net $66.6 billion inflow for the industry in 2015 to the end of November. This compared to $111.4 billion for the same period in 2014.

“If only a fraction of the traditional equity outflow continues to be directed into the alternatives space, then the hedge fund industry has the support it needs for another positive year in 2016.”The two primary drivers of 2015’s slump were dramatic changes in investor appetite for event-driven funds and credit exposure through hedge fund structures.

“After four years of inflows averaging near $40 billion per year, demand for credit exposure in a hedge fund structure evaporated in the second half of 2015,” eVestment said in a report.

Event-driven strategies saw a net withdrawal of $11.2 billion last year, compared with $42.5 billion of new money in 2014.

However, the overall industry inflow was supported by renewed interest in managed futures, macro, and multi-strategy funds.

The $66.6 billion figure could be far lower by the time December figures come available, eVestment said, taking into account a “seasonal redemption cycle” of net outflows in each of the past four Decembers.

Despite these data, and other well-known headwinds for hedge fund managers, eVestment predicted that direct investment from institutional asset owners would continue to support the sector.

Pullback from US equities alone—which totaled $630 billion in the past three years, eVestment estimated—has provided a significant amount of “redistributable capital,” the report said.

“If only a fraction of the traditional outflow continues to be directed into the alternatives space, which it is expected to be, and if the hedge fund industry is expected to at least maintain its position within institutional portfolios, which it is expected to do, then the hedge fund industry has the support it needs for another positive year in 2016,” eVestment’s report added.

Only three of 36 hedge fund indexes posted positive returns in 2015, according to Hedge Fund Research’s HFRX index data, covering the full calendar year. The equity-market neutral, merger arbitrage, and absolute return HFRX indexes all posted single-digit gains, while others—including distressed restructuring and event-driven funds—closed with losses.