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Jan 25, 2016

Hedge funds post first annual net capital outflow for four years

Capital invested in hedge funds rises as performance gains outweigh investor withdrawals

Total hedge fund capital increased in the fourth quarter as performance gains amid sharp volatility more than made up for net capital outflows, according to analysis firm Hedge Fund Research (HFR).

Capital in the quarter rose $22.8 bn from the previous quarter to $2.9 tn, HFR says. Net capital outflows, the first since the last quarter of 2011, totaled $1.5 bn while gains from performance in the quarter totaled about $24.3 bn. For the full year of 2015, net hedge fund capital increased by $51.7 bn with net investor inflows of $43.7 bn.

‘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,’ says Kenneth Heinz, president of HFR, in a press release.

The HFRI Fund Weighted Composite Index rose 0.8 percent in the quarter, but dropped 1 percent for the full year as market turmoil in China and concerns over increases in US interest rates weighed on equity performance around the world. The yearly decline was only the fourth for the index since it was created in 1990.

Gains were concentrated in the largest hedge funds across 2015, with firms managing more than $5 bn in assets gaining a total of $31.2 bn, firms with between $1 bn and $5 bn gaining a total of $6 bn and those with less than $1 bn in assets under management posting a combined increase of $6.5 bn.