Hedge Fund Industry Assets Increase in Difficult Year, Managers Upbeat for 2016 via MFA
Despite a challenging year, hedge fund industry assets under management (AUM) increased by approximately $180 billion during 2015 and now stand at approximately $3.2 trillion, according to industry data provider Preqin. The findings were part of Preqin’s annual Global Hedge Fund Report, which was released this week at MFA’s 2016 Network conference in Miami.
According to the report, investors committed nearly $72 billion of new capital to the industry and Preqin’s benchmark reported 2.02 percent gains during the year. Even though performance was down from previous years, 37 percent of surveyed fund managers reported an increase in institutional capital.
Baupost's investment process involves "never-ending" gleaning of facts to help support investment ideas Seth Klarman writes in his end-of-year letter to investors. In the letter, a copy of which ValueWalk has been able to review, the value investor describes the Baupost Group's process to identify ideas and answer the most critical questions about its potential Read More
“Our industry is proud of the work we do to help institutional investors fulfil their missions of providing secure retirements, expanding medical research, offering scholarships and broadening philanthropic goals,” MFA President and CEO Richard H. Baker wrote in a foreword for the report. “We welcome the opportunity to continue this partnership in the years to come.”
You can read Baker’s foreword to the report and learn more about how institutional investors utilize the industry below.
Looking forward, investors and fund managers cited performance and transparency as key issues for the industry as well as drivers of industry change. Fund managers also cited optimism for the upcoming year with 63 percent having a positive outlook and 72 percent believing that industry AUM will continue to increase in the year ahead.
When hedge funds entered the marketplace 65 years ago, they gave investors a new tool to help meet the challenges of a changing financial landscape. While the industry has evolved since then, hedge fund managers have stayed true to the goal of helping investors deliver risk-adjusted returns over time in all types of market environments. Of all the changes our industry has seen, one of the most noticeable is in its investor make-up.
Once used almost solely by high-net-worth individuals, university and college endowments began partnering with hedge funds in the early 1990s to help meet their financial needs and expand educational opportunities. More than a decade ago, other institutional investors, such as pension plans, followed suit. Today, that partnership has grown to the point where institutional investors now account for about 60% of the industry’s approximately $3.2tn in assets under management. We welcome this trend, which appears likely to continue. Preqin also provides some useful insight into the current reasons chief investment offi cers at institutions continue to allocate to hedge funds. The goals, according to 75% of respondents, include returns that are uncorrelated to the equity market, risk-adjusted and consistent with low volatility.
As in recent years, investors use hedge funds as tools to reduce their exposure to the volatility of the markets. Using a variety of investment strategies – from activist and multi-strategy to equity and emerging markets and beyond – funds continue to be vehicles for managing risk as part of a balanced and diversifi ed investment portfolio.
So, how have funds performed against the individual benchmarks allocators use to measure success? More than seven in 10 institutional investors reported that hedge funds have met performance expectations over the past three years. In 2015 – a turbulent year for global markets – nearly 70% of institutional investors report that their hedge fund allocations have lived up to, or exceeded, the unique objectives investors have laid out for their hedge fund allocation. Another important aspect of these allocations is that they are often made with an eye toward long-term growth and risk management, meaning success should be measured against those objectives.
These are all important facts that get lost in the “who’s up, who’s down” 24- hour news cycle. It also goes against the common misconception that is often reported about the industry: that hedge fund investments are made with the singular goal of providing immediate, market-beating returns. In fact, very often quarterly – or even annual – results hold less weight because institutional investors, due to the nature of their liabilities, are often more focused on long-term growth than quarterly profits.
Full brief below.
Hedge Fund Industry Assets MFA-Contribution (1)