The global hedge fund industry is currently facing headwinds from fee pressure, increased redemptions, and liquidations. The situation has further worsened due to the decreasing number of launches of new funds, as investors around the world are more inclined toward defensive strategies. Despite these tough times, the industry witnessed double-digit annualized return in 2019 for the first time in the past six years.
The United States accounts for three-quarters of the Assets Under Management (AuM) across the world, in this industry. Despite the increase in hedge fund activity in other regions globally, alongside the United States, the country accounts for 3,405 of the 5,523 institutional investors active in hedge funds and 3,319 of the 5,383 active hedge fund managers.
Given the fee pressure, fund managers in some places have given up the traditional 2-20 fee structure for 0% management fee and 30% performance fee.
Fund managers are also increasingly applying artificial intelligence and machine learning (AIML) techniques to improve operational efficiencies and boost returns. There are 150 active crypto hedge funds collectively managing USD 1 billion AuM (excluding crypto index funds and crypto venture capital funds). Over 60% of these funds have less than USD 10 million in AuM, with fewer than 10% managing over USD 50 million.
Key Market Trends
Asset Flow Trends into Hedge Funds
Asset inflow has been consistently negative over the years. In the last decade, the global hedge fund industry initially saw inflows, as investors put money back to work following the global financial crisis. However, three out of the last four years saw overall outflows amounting to approximately USD 140 billion. Meanwhile, a massive rally for long-only assets made generating alpha difficult for hedge fund managers. In absolute terms, performance in the 2010s significantly lagged compared to the 2000s.
For 2019, investors withdrew a net amount of USD 82 billion from hedge funds in the year till November. This marked the worst year for redemptions since USD 110 billion was withdrawn in 2016. Shifting investor sentiment further made the market more challenging for new launches. Mere 529 hedge funds were launched in 2019 - roughly half the number witnessed in 2018 (1,169) - marking the seventh consecutive year of decline. Liquidations outpaced new funds entering the market, shrinking the number of active funds in the industry to 16,256.
Recovering Performance of Existing Hedge Funds
Hedge Funds industry seems to consolidate over the years and the fund managers worldwide seem to become more defensive in their strategies.
Investor interest in hedge fund strategies has shifted a bit from 2019. For instance, Multi-Strategy and Quant Equity hedge funds are once again among the most favorable. Another strategy that has seen a dramatic change in sentiment is Generalist Equity, which may be low relative to the other Equity hedge fund strategies, including Sector-Specific, Market Neutral, and the aforementioned Quant Equity, but up from previous years.
The report includes an overview of not only the largest hedge funds by assets managed, but also major digital asset hedge funds. In AuM terms, the largest player in the industry is BridgeWater Associates, with an AuM of USD 162.9 billion. Currently, some of the major players dominating the market studied are presented here.
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Table of Contents
1.2 Market Definition
2.2 Study Assumptions
2.3 Analysis Methodology
2.4 Research Phases
4.1.1 A Brief about Hedge Funds - Key Activities, Metrics, and Operating Structure
4.1.2 Asset Flow Trends into Hedge Funds
4.1.3 A Note on the Largest Hedge Fund Investors worldwide
4.1.4 Trends Influencing Launches and Liquidations of Hedge Funds
4.2 Insights on Various Investment Styles of Hedge Funds
4.3 Impact of Technology on Operating of Hedge Funds
4.3.1 Increasing Market usage of AIML by Hedge Funds, by Investment Strategy
4.3.2 Volatility and Sharpe Ratio of AIML Hedge Funds
4.3.3 Performance of AIML Hedge Funds vs. Systematic Hedge Funds
4.4 A Note on Digital Asset-based Hedge Funds
4.4.1 Fund Strategies of Crypto Hedge Funds
4.4.2 Launches and Asset Flow Trends of Crypto Hedge Funds over the quarters
4.4.3 Fee Structures across different Strategies of Crypto Hedge Funds
4.4.4 Insights on Fund Performance and Redemption Periods of Crypto Hedge Funds
4.5 Regulatory Trends Shaping the Marketplace
4.6 Market Drivers
4.6.1 Emerging Demand for Smaller or Newer Fund Managers
4.6.2 Recovering Performance of Existing Hedge Funds
4.7 Market Restraints
4.7.1 Management Faces Fee Pressure from Investors
4.7.2 Impacts of Global Markets slowdown on Fund Redemptions, Fund Launches and Fund Liquidations
4.8 Porter's Five Forces Analysis
4.8.1 Threat of New Entrants
4.8.2 Bargaining Power of Buyers/Consumers
4.8.3 Bargaining Power of Suppliers
4.8.4 Threat of Substitute Products
4.8.5 Intensity of Competitive Rivalry
4.9 PESTLE Analysis
5.1.1 Equity Strategies
5.1.2 Macro Strategies
5.1.3 Event Driven Strategies
5.1.4 Credit Strategies
5.1.5 Relative Value Strategies
5.1.6 Niche Strategies
5.1.8 Managed Futures/CTA Strategies
5.2 By Manager Location
220.127.116.11 United states
18.104.22.168 Rest of Americas
22.214.171.124 United Kingdom
126.96.36.199 Rest of Europe
188.8.131.52 Hong Kong
5.2.4 Rest of World
6.2 Mergers and Acquisitions
6.3 Company Profiles
6.3.1 BridgeWater Associates
6.3.2 Renaissance Technologies
6.3.3 Man Group
6.3.4 AQR Capital Management
6.3.5 Two Sigma Investments
6.3.6 Millennium Management
6.3.7 Elliot Management
6.3.10 Davidson Kempner Capital*
A selection of companies mentioned in this report includes:
- BridgeWater Associates
- Renaissance Technologies
- Man Group
- AQR Capital Management
- Two Sigma Investments
- Millennium Management
- Elliot Management
- Davidson Kempner Capital*