The hedge fund industry suffered another difficult year in 2019 with continuing fund closures and significant outflows, according to new research.
Last year the total number of hedge funds declined for the fifth straight year to 9,448, with 540 closures compared with 391 launches, reports HFR, a data and research firm.
Investors also pulled a net $43.1 bn from hedge funds during 2019, marking the second consecutive year of outflows and bringing the net amount withdrawn over four years to $141.7 bn.
Investors have turned negative on hedge funds following their inability to match the returns available in global equity markets: in 2019, the MSCI World Index surged 27.7 percent, supported by US interest rate cuts. By contrast, the HFRI Fund Weighted Composite Index, which tracks the global hedge fund industry, posted just 10.4 percent.
One of the biggest losers of the year was Russell Clark’s Horseman Global Fund, which lost 35 percent after betting heavily against equities.
‘This year has not worked out as planned and, unless there is a huge plunge in markets at year-end, will end up being my worst year ever,’ Clark said in a letter to clients in November, adding: ‘I increasingly hear talk that central bank and government activism has ended recessions and possibly bear markets.’
Driven by the growth in equity markets, hedge fund assets ended the year at a record high of $3.3 tn, reports HFR. Equity-focused strategies managed the largest proportion of assets, at 29.3 percent, with event-driven strategies covering 26.3 percent.
Despite net outflows for 2019 of $22.4 bn, equity hedge funds reduced their overall losses in the fourth quarter of the year with inflows of $1.8 bn. ‘[Equity hedge fund] sub-strategy inflows were driven by fundamental value funds, which received more than $3 bn in new capital,’ says HFR in a statement.
Speaking to the Financial Times, Don Steinbrugge, the founder and CEO of Agecroft Partners, says there will be more fund closures in 2020 as most of the inflows will go to a small group of managers.
‘I expect 5 percent of [existing hedge] funds to attract 80 percent to 90 percent of the net new assets,’ he says.