Considering the year that hedge funds have had, it's perhaps no surprise to learn that the total number of hedge funds across the industry has been sharply declining in recent months. The hedge fund world has been rocked by persistent low return levels, investor redemptions, and fundamental questions about whether the hedge fund model is still viable. In response, liquidation levels for 2016 are on pace to reach the highest number since the 2008 crisis, and launches in he second half of the year seem to be the lowest since 2009 as well.
More Liquidations and Fewer Launches
The combination of a greater number of hedge fund liquidations, the most in nearly a decade, and the fewest launches since the first quarter of 2009 has led to a record low number of hedge funds in existence at the end of 2016. In fact, according to information from Hedge Fund Research, the overall number of funds has dropped to 9,925 through the end of the third quarter of this year, marking the first time that number has been below 10,000 since 2014.
Still, while the total number of hedge funds in operation has declined, oddly enough, the total levels of assets under management (AUM) has reached a high point. In spite of investor withdrawals that have plagued the industry and forced some prominent funds to close, the total AUM levels across the hedge fund world reached just shy of $3 trillion. Performance levels, though not up to investor standards, have nonetheless been able to compensate for total investor outflows.
Things Looking Up?
According to Preqin, the hedge fund data provider, November was a positive month for the hedge fund industry. Preqin's All-Strategies benchmark gained 1.00% for that month, bringing total year-to-date returns to 6.74%. It has been highly publicized that hedge funds are still on pace to lag behind the S&P 500 for the year, but this is nonetheless good news for an industry that has counted any positive returns whatsoever as a success in recent years. In November, North American funds were the top performers, bringing in an average of 2.89% in returns for that month, and 9.09% for the year through the end of November. Event-driven strategies in particular were the strongest performers.
A number of major external factors have impacted hedge fund performance this year. Brexit rocked the U.K. markets and hedge funds across the industry reacted with surprise, as only 11% of managers interviewed expected the Brexit results to turn out the way they did. Similarly, Donald Trump's U.S. presidential victory came as a shock to many money managers who likewise anticipated the votes to fall in a different manner. In the months and weeks since these events, world markets have continued to shift.