Hedge funds reach record $3.35 trillion assets despite sluggish returns

Hedge fund assets reached an all-time record high in the first quarter of 2017 as the industry reversed 15 months of outflows – despite returns lagging global stock markets.

Managers now hold $3.35 trillion (£2.59 trillion) in assets from investors, according to data company Preqin.

The total assets of hedge funds increased by 3.2 per cent to reach $19.7bn during the quarter, the first overall inflow of money since the autumn of 2015.

Funds focused on macroeconomic strategy were the biggest beneficiary, attracting $11.1bn more cash as total assets under management breached $1 trillion for the first time ever.

The hedge fund industry suffered during 2016 as a global economic slowdown led to investors withdrawing their money and demand for alternative investment products diminishing.

Overall hedge fund industry returns have struggled to justify often exorbitant fees. Investment returns since March 2016, when global slowdown fears reached their zenith, were 10.67 per cent, according to Preqin. Meanwhile the S&P 500, the standard barometer of US investment returns, has returned more than 15 per cent in the same period.

The strong returns in stock markets around the world since then may have been to blame for the $10bn in outflows experienced by equity funds, with investors unwilling to pay higher fees for returns available through index trackers.

Amy Bensted, head of hedge fund products, said: “2016 was undeniably a difficult year for the hedge fund industry, with net outflows reflecting a reduced appetite for the asset class from institutions following a sustained period of low returns to investors since 2014.

“However, following an extended run of improved performance since March 2016 investor sentiment seems to be improving in 2017, which is reflected by inflows over the start of the year.”

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