Hedge Fund Investor Redemptions Accelerate Through 2016


Q4 2016 sees net asset outflows of $43bn, the fifth consecutive quarter of negative flows


2016 Hedge Fund Letters

Despite hedge funds returning 7.40% over 2016, investors continued to withdraw capital over the year; the industry saw overall net asset outflows totalling $110bn in 2016. Preqin’s latest research finds that the rate of redemptions accelerated through the year, from net outflows of $14bn in Q1 to $43bn in Q4 2016. Every leading hedge fund strategy recorded net outflows for the year: by contrast, CTAs recorded annual net inflows of $26bn despite lacklustre performance. Although there have been widespread redemptions across the industry, there is a clear link between past performance and recent asset flows, with the best performing funds in 2015 and H1 2016 being the most likely to see net inflows in Q4 2016.

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TCI David Marcus Investment ResearchThe Children's Investment Fund Management LLP is a London-based hedge fund firm better known by its acronym TCI. Founded by Sir Chris Hohn in 2003, the fund has a global mandate and supports the Children's Investment Fund Foundation (CIFF). Q3 2021 hedge fund letters, conferences and more The CIFF was established in 2002 by Hohn Read More

Hedge Funds – Other Key Hedge Fund Asset Flow Facts:

  • The hedge fund industry has now seen five successive quarters of net outflows; net redemptions since Q4 2015 have totalled $119bn.
  • Funds pursuing an equities strategy were the only sector to see net outflows in every quarter of 2016. Equities strategies ($50bn), credit strategies ($28bn), relative value strategies ($25bn) and multi-strategy ($23bn) funds account for the majority of 2016 outflows.
  • The largest proportion of funds of every leading strategy saw net outflows. Of these, the majority of equities strategies (53%), macro strategies (56%) and niche strategies (60%) funds recorded net redemptions.
  • The majority (58%) of funds with $1bn or more in assets saw net outflows in Q4 2016, while only 26% saw inflows. Among the smallest funds with less than $100mn in assets, 49% recorded net Q4 outflows, and 35% saw inflows.
  • Funds that recorded higher returns in 2015 were more likely to see net inflows in Q4 2016. Forty-four percent of funds that gained 5.00% or more the previous year saw net inflows, twice the proportion of funds that saw 2015 losses of more than 5.00%.
  • Similarly, funds with higher performance in H1 2016 were more likely to see net Q4 inflows. However, even among funds that returned +5.00% or more, a greater proportion saw net outflows (46%) than saw inflows (40%) through the quarter.

Amy Bensted, Head of Hedge Fund Products:

“Investors continued to withdraw capital from the hedge fund industry over 2016, as concerns around performance and fees grew, despite the Preqin All-Strategies Hedge Fund benchmark recording its highest gain in three years. In total, hedge funds recorded outflows of $110bn in 2016; however, CTAs recorded net inflows of $25bn, as investors rebalanced in favour of these strategies at the start of the year.

With performance at the forefront of investors’ minds in 2016, Preqin’s data shows that those funds that posted superior performance in 2015 and the first half of 2016 saw greater inflows than funds which made smaller gains. Therefore, as we move forwards in 2017, it is likely that investors will continue to scrutinize the returns of funds, and are likely to continue to withdraw money from funds that have failed to meet their own individual or benchmark returns.”

Q4 2016 Hedge Fund Asset Flows

We take a look at hedge fund asset flows in Q4 2016 by strategy, fund size, manager headquarters and performance.

In 2016, the Preqin All-Strategies Hedge Fund benchmark recorded its highest gain since 2013, generating returns of 7.40%. However, investors’ redemptions accelerated throughout 2016; in Q4, investors redeemed a net $43.1bn from hedge funds, the largest out” ow of any quarter in the year (Fig. 1). Furthermore, this represents the fifth consecutive quarter of net outflows. In total, $109.8bn was withdrawn from hedge funds in 2016, and $118.7bn since outflows began in Q4 2015.

Despite investor withdrawals in 2016, the assets under management (AUM) of the industry grew to record levels ($3.25tn) as a result of performance gains made over the year.

The majority of outflows seen in Q4 2016 came from funds operating equity and relative value strategies (outflows of $22.9bn and $10.1bn respectively). Over 2016, equity strategies represented 46% of the total industry outflows, although credit, relative value and multi-strategy funds also lost significant assets. While all top-level hedge fund strategies saw overall outflows in 2016, CTAs recorded net inflows of $25.5bn in 2016, despite investors redeeming $1.6bn in Q4 2016.

Fig. 4 shows that the largest funds saw the largest redemptions in Q4 2016: approximately 58% of funds of at least $500mn in size saw net outflows in the quarter.

The correlation between strong past performance and the likelihood of attracting new capital persisted in Q4. Forty percent of funds that achieved positive returns in the first half of 2016 subsequently experienced a net inflow of capital in Q4, whereas just 21% of funds that generated a return of less than -5.00% in H1 attracted new capital over the quarter.

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