4 Chief Investment Officer / September–October 2017
Glimmers of optimism keep mounting for the hedge fund industry. The renewed
interest follows a brutal 2016, in which investors yanked $106 billion from the asset class,
with the fourth quarter seeing the biggest
quarterly outflows since the financial crisis
as investor frustration mounted.
The questions now for hedge fund
managers and investors are whether the
industry learned its lessons and how best it
can add value to institutional portfolios.
Investors have allocated $30.5
billion to hedge funds through July of
this year, according to eVestment. Investors allocated $7.91 billion to hedge funds
in July, bringing total assets under management (AUM) to $3.16 trillion–just shy of the
$3.168 trillion it reached in May 2015.
“For the fourth-consecutive month,
a greater proportion of funds have had net
inflows than outflows, indicating a promising
turnaround for an industry that had serious
challenges in 2016,” eVestment wrote in its
research report. “Interest in hedge funds
is returning, and we are seeing that trend
accelerate,” said Darren Wolf, head of hedge
funds at Aberdeen Asset Management.
Art by Alex Eben Meyer
+HE AR D
The Hedge Fund Turnaround
Wolf said the investor malaise that
peaked last year was building for several
years. The collapse of some high-profile
mergers led to shockwaves in 2014 for many
funds. A sudden plunge in oil prices in 2015
also caught the industry off guard. Lackluster performance into 2016 led to rising
cries about the high fees the funds charged
and the value they delivered.
The market backdrop since the financial
crisis, though—where central bank policy
tended to dictate the direction of markets—
also played a crucial role in the tarnished
reputation of hedge funds.
“On the macro side, you have markets
that aren’t operating like they used to, with
pretty much every major central bank’s
influence in asset prices,” said Peter Laurelli,
Global Head of Research at eVestment.
“When you have a theory based on experience of why security prices or relative
prices should react in a certain way, it can
“Interest in hedge
funds is returning,
and we are
seeing that trend