Hedge funds lost more capital in 2016 than in any year since 2009, according to research from eVestment.
Over the last 12 months, investors withdrew nearly $180 billion from hedge funds while allocating roughly $70 billion, for total net redemptions of $106 billion, the report said.
This was only the third time on record that withdrawals outnumbered new investments in hedge funds, according to eVestment. The negative flows came in a year when multiple prominent investors, including pension funds and insurers, announced decisions to cut their hedge fund allocations.
“Throughout 2016, investors clearly reacted to widespread underperformance from 2015, but at the same time showed a willingness to allocate to products which performed well,” the report stated.
Despite outflows, the hedge fund industry still ended the year with slightly higher assets under management, as performance gains of $119.9 billion offset investor withdrawals.
According to another eVestment report, hedge funds on average returned 5.34% last year, with distressed funds performing the best.
Investors may have “missed the boat” on hedge funds in 2016, Peter Laurelli, the firm’s global head of research, wrote in an accompanying blog.
“Since many institutional decisions take a long time to make (and unmake), results from 2015 caused many institutions to back away from hedge funds,” he wrote. “While some high-profile hedge funds stumbled badly in 2015 and 2016, overall, all major hedge fund segments produced positive returns in 2016.”
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