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Preqin reports seven months of positive returns for hedge funds

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Preqin’s latest hedge fund report finds that although  hedge  funds  are  under  sustained  investor  scrutiny,  the  third  quarter  of  2016  saw  continued  improvement  in  the performance  of  the  asset  class,  marking  seven  consecutive  months  of  positive  returns  for  the  industry.  

The firm writes that this  is  the  longest stretch  of  positive  monthly  returns  since  the  second  half  of  2012.  Fees  and  performance  remain  at  the  top  of  the  list  of investors’  concerns  for  the  industry  in  2016  according  to  Preqin  Investor  Outlook:  Alternative  Assets,  H2  2016,  yet  this  solid run of positive returns may assuage some of these concerns.
 
Preqin says that although more high-profile investors have indicated that they are cutting, or thinking of reducing, their exposure to hedge funds in Q3 2016 – notably New Jersey Investment Council, which announced plans to redeem USD190 million from hedge funds this quarter, and Teacher Retirement System of Texas, which is reviewing its allocation to hedge funds due to underperformance and outsized fees – there are also other investors that are seeking opportunities within the asset class.
 
“For instance, California State Teachers’ Retirement System plans to increase its allocation to hedge funds, adding up to USD8.7 billion to the asset class over the next three years.”
 
According  to  Preqin’s  Hedge  Fund  Online,  there  have  been  118  hedge  funds  launched  this  quarter.  Although  the  largest proportion  of  these  funds  pursue  an  equity  strategy,  there  has  been  continued  decline  in  equity  strategies  fund  launches over the past four quarters: in Q3 2016, just 38 per cent of funds launched followed an equity strategy, compared with 53 per cent in Q4 2015.
 
The largest proportion (30 per cent) of fund managers surveyed in July expected equity strategies to be the worst performing strategy in 2016, reflecting this decrease in confidence in the strategy. Despite this, funds employing equity strategies have performed the best in Q3, generating 5.10 per cent in net returns, Preqin says.
 
“We have noted an increase in the proportion of funds launched by North America-based fund managers over Q3 2016, at the expense of funds launched in Europe, which may have been impacted by the volatility and uncertainty arising as a result of the unexpected Brexit vote at the end of Q2 2016. Institutional investors and fund managers alike will be playing close attention to the impact of the US presidential election on markets in Q4; the value of hedge funds to reduce risk within portfolios during periods of uncertainty may be more important than ever during the final quarter of the year.”

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