Flat Year for Hedge Funds as Industry Ends 2015 at $3.027 Trillion in Assets

Total hedge fund assets fell $58.2 billion in December 2015, reducing total industry AUM at the end of 2015 to $3.027 trillion, according to eVestment’s December and Year-End Hedge Fund Asset Flows Report. Investors removed about $24.6 billion from hedge funds in December, with performance losses accounting for another $33.7 billion in asset reductions. The industry’s total AUM at the end of 2015 is essentially flat compared to where the industry ended 2014, at $3.026 trillion according to eVestment data, with redemptions and performance drops off-setting the $44.6 billion investors added to hedge funds during 2015.

The hedge fund industry’s large redemptions in December 2015 should not be viewed solely in the context of recently publicized pockets of negativity. In each of the last five years, December has been a month where redemptions far outpaced new allocations. The average December net flow over the last five years has been negative $18.2 billion and this year-end redemption pressure has shown itself to be a normal part of the investment cycle.

Other interesting points from the report include:

· Every major strategy and market exposure, with one exception (commodity-focused strategies), felt the weight of December’s seasonal redemption pressure. In the midst of their worst performance year on record (-10.8%), commodity hedge funds have begun to feel investor sentiment shift in their favor. Since mid-2011 through May 2015, investors had persistently been redeeming assets from the universe, but in the last seven months ending in December, allocations have been positive in all but one. The inflows of $1.8 billion in this stretch are an indication investors see opportunity in the commodity space.

· Macro funds have received an over-weighted portion of recent negative publicity surrounding high-profile fund losses and/or closures. December’s redemptions of $6.6 billion from macro funds were beyond the seasonal norm (average December net outflow of $3.0 billion in the last four years) and are in part a reaction to large losses in June and August. The universe may continue to see redemption pressures into 2016 as elevated losses persisted in December.

· Event driven funds had the largest outflows of any strategy in 2015, including elevated redemptions in December. The universe has a more varied flow history than many other major strategies. The group’s net flows were positive in both 2008 and 2009, aided by launches of new products targeted at a unique set of circumstances and opportunities in the wake of the financial crisis. It

· Emerging market hedge fund flows were not as negative as the rest of the industry’s major universes in December. One major difference in December, however, was the appearance of redemptions from China-focused products. Flows were not overwhelmingly negative within the universe, but redemptions did outpace allocations for only the second time in 2015.

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