After witnessing excellent performance-based gains in 2012, hedge funds continued the momentum in 2013 while also witnessing allocations from investors. The industry has attracted net asset inflows of US$56.9 billion during the first five months of 2013 in stark comparison to last year which saw net outflows of US$3.8 billion over the course of 12 months. The robust allocation activity along with continued positive performance has brought the AUM of the industry to US$1.88 trillion as at end-May 2013.
Over the last 13 years the sector has witnessed varying trends – a period of tremendous growth, a downturn and a rebound. In year 2000 total assets in the global hedge fund industry stood at US$335 billion, managed by 2840 funds. Over the next seven and a half years, the industry’s asset base grew by almost 500% to cross the US$1.95 trillion by mid-2008. During this period the total fund population also increased by nearly 3.5 times.
The financial crisis in 2008 reversed this growth trend with assets falling to US$1.29 trillion by April 2009 due to performance-based declines and heavy redemptions by investors. The strong rallies in global markets in the last eight months of 2009 and the subsequent positive asset flows in 2010 aided the industry’s recovery but concerns about the global economy and the European debt crisis stalled this recovery in 2011 and most of 2012.
Figure 1: Industry growth since 2000
Despite a tumultuous period from 2011 to most of 2012 when global markets witnessed substantial volatility and risk aversion, the hedge fund industry witnessed an increase in its AUM of roughly 12% since December 2010.