For the first time since late 2011, there was a net outflow from the world's hedge fund sector, figures for 2015 show.

The total capital of hedge funds stood at $2.9 trillion at the end of last year, a rise of $22.8 billion over the prior quarter. However, the figure masked a net outflow of $1.52 billion in the final three months of last year, the first time there has been such a pullout since the final quarter of 2011, figures show.

Data from Chicago-headquartered Hedge Fund Research showed that its HFRI Fund Weighted Composite Index posted a gain of 0.8 per cent in the fourth quarter 2015, but declined -1.0 per cent for full-year 2015, only the fourth calendar year decline since inception in 1990. The HFRI Asset Weighted Composite Index – which takes account of the performance variations between large and small hedge funds – rose by 0.5 per cent in Q4 2015, and was essentially flat for 2015.

For the whole of last year, total hedge fund capital increased by $51.7 billion.

Reflecting on recent market developments, such as falls in stocks in early 2016 and rising volatility that kicked off in the summer of 2015, Kenneth Heinz, president of HFR, told journalists in a briefing yesterday that there has been a turning point.

“The bull market in equities concluded in the latter half of 2015. That’s clearly what has happened,” he said. The market is now going through a transition period, to be accompanied by heightened volatility, he added.

It is possible that this year will see funds with a distressed debt/equity strategy looking to put money to work to exploit opportunities that arise, he said, when asked about stresses in markets such as high-yield corporate debt, as in the energy sector. However, a challenge to distressed-sector fund managers is appealing to investors at a time when there is a high premium attached to liquidity, and a recent history of modest returns, Heinz said.
 

Inflows
Inflows by firm size remained concentrated in the industry’s largest firms, with firms managing greater than $5 billion in assets receiving inflows of $3.2 billion in the fourth quarter. Investors withdrew $2.8 billion from firms managing between $1 billion to $5 billion in Q4, and withdrew a combined $1.9 billion from firms with less than $1 billion in AuM in the quarter.

Macro and CTA [commodity trading advisor] hedge funds led strategy inflows for the fourth quarter, receiving $2.5 billion in new capital. This brought macro strategies to a narrow inflow of $900 million for 2015, increasing total macro capital to $550 billion. 

The HFRI Macro (Total) Index fell 1.15 per cent in 2015, though larger macro funds demonstrated strong performance relative to smaller funds.

Equity hedge strategies took in $25.8 billion for the full year, including $2.0 billion in Q4, bringing total equity hedge capital to $829 billion. Both event driven and fixed income-based relative value arbitrage (RVA) strategies experienced capital outflows in 4Q, but inflows for the full year.

“The global hedge fund industry expanded in 2015 as global financial markets entered into an important and uncertain transitional macroeconomic environment, resulting in acceleration of asset volatility and wide performance dispersion across hedge fund strategies,” Heinz said.

“While financial market dislocations have contributed to mixed performance across the most directional energy- and credit-sensitive strategies, many larger hedge fund firms had positioned conservatively for the reversal of the equity beta trend, resulting in positive cap-weighted strategy performance. With clear acceleration of these transitional trends into early 2016, it is likely that investors will continue to exhibit strong preference for low beta exposures and leading firms into 2016.”