The majority of hedge fund managers were unsuccessful at finding investors last year, according to new data from eVestment.
Fifty-eight percent of managers analyzed by the investment research firm did not raise net new capital in 2018, according to the firm's report Thursday. Investors redeemed $35.3 billion more than they invested in the industry – the second biggest outflow since 2009, ranking behind the triple-digit net redemptions seen in 2016.
The vast majority of the outflows came during the year’s volatile fourth quarter, with investors redeeming a net $19.64 billion in December alone, according to eVestment. The combination of investment losses and net outflows resulted in a $87.7 billion decline in industry assets — the largest since 2008 — to about $3.19 trillion.
The hedge fund firms that managed to attract money were those with the highest returns in 2017, eVestment’s data show. Among Americas-focused hedge funds larger than $1 billion, 2017 returns of greater than 5 percent translated into net inflows of $10.94 billion. Billion-dollar-plus hedge funds targeting Europe, emerging markets, and global markets were also rewarded for 2017 gains. The only exception was 2017’s top-performing Asia hedge funds, with large funds suffering outflows of $1.12 billion in 2018.
Hedge funds that did receive “meaningful” net flows in 2018 delivered for their investors, outperforming the industry by more than 400 basis points, according to eVestment.
As a group however, hedge funds tracked by eVestment lost 5.15 percent last year, trailing the Standard & Poor’s 500 index, which was down 4.38 percent. This loss is larger than figures reported by other hedge fund trackers like Preqin and HFR, whose indexes showed hedge funds either outperforming or performing roughly in line with equity markets.
Preqin’s all-strategies hedge fund benchmark finished the year down 3.42 percent, while HFR’s composite index declined 4.49 percent.
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Fund liquidations also contributed to the industry’s decline in assets under management, with 746 hedge funds closing last year, according to a Preqin report on January 23. Although the number of liquidations paled in comparison to the preceding three years, when upwards of 1,000 funds shuttered annually, liquidations still outpaced fund launches: Just 609 new hedge funds were launched last year, Preqin said, a 48 percent decline from 1,169 in 2017.
Based on current investor sentiment, the hedge fund industry as a whole is unlikely to make a comeback this year: Investors surveyed by Preqin said they were largely dissatisfied with their hedge fund portfolios, with 55 percent stating that their managers’ performance had fallen short of their expectations. Only 8 percent said their managers exceeded expectations.