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Hedge Fund AUM Could Hit $2 Trillion By Year’s End

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Hedge funds had their third straight month of performance gains, but total assets under management still fell in November as investors started pulling money out, according to Eurekahedge’s monthly report.

“After four consecutive months of positive asset flows during which the industry witnessed net allocations of US$64.4 billion, the month of November saw a sharp detraction from this trend with investors withdrawing a net of US$3.96 billion from the hedge fund industry,” says the Eurekahedge report. “Meanwhile all regional mandates registered their third consecutive month of positive performance-based gains raking in US$2.51 billion during the month.”

Total AUM hovered around $1.99 trillion in November, and Eurekahedge says that the industry will probably pass the $2 trillion mark this year, but if the outflows continue or even increase that goal could be hard to reach. While it’s true that hedge funds have been growing, they haven’t necessarily been outperforming the market, and even funds that perform in line with the market may be having trouble justifying their fees to investors.

Hedge fund flows by region

Hedge funds with a North American mandate had the best performance in November, growing $1.3 billion, but they also had the largest outflows ($2.6 billion) resulting in a net loss. Europe and Asia ex-Japan both grew by less than $1 billion while hedge funds operating in Japan and Latin America were essentially flat. Flows were positive in Asia ex-Japan and flat in Japan, making these the only two regions to increase total AUM in November. Latin America had the biggest drop in relative AUM, losing 1.1% of its total value due to $800 million in outflows.

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Hedge fund flows by strategy

Long/short equity strategies had both the best performance and the largest inflows last month, gaining $1.7 and $1.5 billion respectively. This is yet another sign that investors are bullish on stocks, but it also shows that hedge funds are gaining wider acceptance as a legitimate way to increase exposure to equities. CTA/managed futures had the next best performance, gaining $900 million, but outflows of $3 billion caused this segment to lose 1.1% of AUM. Macro strategies lost $400 million to poor performance and another $2 billion to outflows, but most other strategies had flat performance and flat to negative flows. Distressed debt continues to be the best performing strategy YTD, even though it was flat in November, but this is an artifact of much stronger performance earlier in the year.

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