According to a report by Reuters, data analytics company Preqin has stated that hedge funds have underperformed public markets in the past five years, leading to capital outflows. However, in the first three quarters of 2023, hedge funds specializing in trading cryptocurrencies and insurance-related assets have become the focus of investment attention and attracted net inflows.
According to Reuters, investment data company Preqin’s latest report on the global hedge fund industry reveals that hedge funds specializing in tracking trends and niche strategies in trading cryptocurrencies and insurance-related assets have become the focus of investment attention in the first three quarters of 2023, attracting a significant amount of new capital.
The report indicates that trend-following hedge funds, which utilize algorithms to capture market trends, have attracted a net inflow of $13.1 billion. At the same time, niche hedge funds within the niche strategies industry have also experienced a net inflow of $11 billion.
Although these funds have attracted new capital, it has not been enough to prevent capital outflows. While hedge funds specializing in trading cryptocurrencies and insurance-related assets have attracted a significant amount of new capital, the overall growth of the hedge fund industry’s asset management has been relatively limited, with only a 5% increase.
Compared to the capital growth, these hedge fund strategies have faced outflows. Trading strategies in stocks have experienced a net outflow of $15 billion, and event-driven strategies relying on corporate debt and mergers and acquisitions have experienced a net outflow of $11 billion.
Over the past five years, hedge fund market investors have shown a tendency to withdraw capital rapidly during market downturns. Preqin’s report emphasizes this trend, stating that out of 20 quarters in the past five years, 12 quarters have seen net outflows from hedge funds. In particular, from the end of 2018 to Q2 2020, hedge funds experienced significant client withdrawals, with a cumulative net outflow of up to $205.6 billion. Preqin’s analysis in the report suggests that the underperformance of hedge funds compared to public markets during this period may be a significant reason for many investors reducing their investments in hedge funds.
In the first three quarters of 2023, the influx of new capital in cryptocurrencies and insurance-related assets has helped restore some vitality to these hedge funds.