Hedge Funds WhatHedge Funds – What Happened &What’s Next?Happened & What s Next?

Ee Fai KamHead of Asian Data, Preqin

Alternative Investments Summit India 2017

Big PictureBig Picture

ResilienceResilience

+ 

Expect the unexpected

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Use of Alternative AssetsUse o te at e ssets• Hedge funds – important in institutional portfolios

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Hedge Funds: What Happened in 2016?edge u ds at appe ed 0 6

Brexit: Improving sentimentsp gJuly Nov

% of managers seeing negative impact  34% 21%

% of investors expecting to invest less in UK  31% 21%

% of investors expecting to invest more in UK 7% 13%

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Hedge Funds: What Happened in 2016?edge u ds at appe ed 0 6• More assets, more funds and more investors

Coins $3.216tnHedge fund industry AUM has increased by $19bn since December 2015 to $3.216tn as of November 

2016.

$101.6bn Investors withdrew an aggregate net $101.6bn from hedge funds in 2016.

People 5,100+ More than 5,100 institutional investors allocate to hedge funds.

+49 funds 1,030 hedge funds launched in 2016; in contrast, 981 funds closed.

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20160 6

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Performance Review on Hedge Fundse o a ce e e o edge u ds• Two thirds of investors believe hedge fund performance did not meet expectations over the course of 2016

21%8% 9% 3%

90%

100%

57% 58%

31%

60%

70%

80%

pond

ents Exceeded 

Expectations

66%

63%

30%

40%

50%

portion of Resp

Met Expectations

Fallen Short of

16%

35% 33%

0%

10%

20%Prop

Fallen Short of Expectations

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2013 2014 2015 2016

Hedge Fund Performance Review by Strategy

• Emerging market strategies were rated highly by investors

100%

25% 31%40% 40%

50% 53% 58% 58% 60%71% 73%60%

70%

80%

90%

onde

nts

75% 69%60% 60%

50% 47%30%

40%

50%

60%

ortio

n of Resp

Fallen Short of Expectations

Met Expectations50% 47% 43% 42% 40%29% 27%

0%

10%

20%

Prop

o Met Expectations

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Hedge Fund Net Returns by Strategy• Event Driven strategies was the top performing strategy in 2016.

Q1 2016 Q2 2016 Q3 2016 Q4 2016 Cumulative 2016

Macro Strategies Event Driven Strategies Equity Strategies Event Driven Strategies Event Driven Strategies

1.49% 3.97% 5.05% 4.02% 12.44%

Credit Strategies Credit Strategies Event Driven Strategies Credit Strategies Credit Strategies

0.20% 2.34% 4.58% 2.18% 8.49%

Multi‐Strategy Macro Strategies Credit Strategies Relative Value Strategies Macro Strategies

‐0.20% 2.21% 3.49% 1.96% 7.09%

Relative Value Strategies Equity Strategies Multi‐Strategy Multi‐Strategy Multi‐Strategy

‐0.43% 2.08% 3.15% 1.78% 7.03%

Event Driven Strategies Multi‐Strategy Relative Value Strategies Macro Strategies Equity Strategies

‐0.50% 2.03% 2.12% 1.44% 6.64%

Equity Strategies Relative Value Strategies Macro Strategies Equity Strategies Relative Value Strategies

‐1.82% 1.10% 1.68% 1.29% 4.74%

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Fund Launches and Closures in 2016u d au c es a d C osu es 0 6• Fund closures outpaced launches in multi strategy, credit strategies and CTA sectors.

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Investor Plans for Hedge Funds in 2017esto a s o edge u ds 0• More investors plan to reduce their exposure to hedge funds (38%) …

29% 35% 38% 33% 32% 26% 25% 20%

80%

90%

100%

44%43%

50%

60%

70%

Respon

dents

Increase Allocation

Maintain Allocation51%

54% 53%47%

60%58%

20%

30%

40%

50%

Prop

ortio

n of  Maintain Allocation

Decrease Allocation

20%10% 9%

20%8%

16%32% 38%

0%

10%

20%

Dec‐09 Dec‐10 Dec‐11 Dec‐12 Dec‐13 Dec‐14 Dec‐15 Dec‐16

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Dec‐09 Dec‐10 Dec‐11 Dec‐12 Dec‐13 Dec‐14 Dec‐15 Dec‐16

Investor Plans for Hedge Funds in 2017esto a s o edge u ds 0• …than plan to increase their allocations (20%)...The second time Preqin has noted thisPreqin has noted this

29% 35% 38% 33% 32% 26% 25% 20%

80%

90%

100%

44%43%

35% 38%

50%

60%

70%

80%

Respon

dents

Increase Allocation

Maintain 

38%

51%54% 53%

47%60%

58%

20%

30%

40%

50%

Prop

ortio

n of 

Allocation

Decrease Allocation

20%10% 9%

20%8%

16%32% 38%

0%

10%

20%

Dec‐09 Dec‐10 Dec‐11 Dec‐12 Dec‐13 Dec‐14 Dec‐15 Dec‐16

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Investor Plans for Hedge Funds in 2017, by Strategyg , y gy

25%

26%

55%

69%

20%

6%

Macro Strategies

Relative Value Strategies

24%

24%

25%

56%

61%

55%

19%

15%

20%

Equity Strategies

Event Driven Strategies

Macro Strategies

13%

13%

15%

58%

61%

74%

29%

26%

12%

Fund of Hedge Funds

Managed Futures/CTA

Credit Strategies

7%

7%

80%

73%

81%

20%

20%

12%

Activist

Emerging Markets

Multi‐Strategy

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%Proportion of Respondents

Increase Exposure Maintain Exposure Decrease Exposure

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Increase Exposure Maintain Exposure Decrease Exposure

Key Issues Facing the Hedge Fund Industry Todayy g g y y• Performance, fees and perception of the industry by the public were rated as the leading issues facing the industry by investorsrated as the leading issues facing the industry by investors

73%Performance

29%42%

49%64%

R l tiVolatility/Uncertainty in Global Markets

Perception of Industry by PublicFees

18%18%19%

29%

Portfolio ManagementTransparencyGovernanceRegulation

10%18%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Notable Investors Exiting the Asset ClassPortfolio Management

Proportion of Respondents

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Proportion of Respondents

Key Issues Facing the Hedge Fund Industry Today• Fund managers agree

73%80% 73%

64%

50%

60%

70%

pond

ents

38%

29%25%

20% 20%30%

40%

50%

ortio

n of Resp

20% 20%16%

12%

0%

10%

20%

Prop

o

Performance Investor Demand for More Favourable 

Fees

Market Volatility

Transparency around Risk and 

Performance

Competition in Fundraising

Investor Appetite for Alternative Investment 

Funds

Liquidity at Fund Level

Regulatory Scrutiny of Alternative 

Funds

Investor Scrutiny of Alternative 

Funds

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Fees Funds

Fund Manager Outlook on Performance by St tStrategy• Credit strategies are predicted to perform the worst in 2017; equity strategies are expected to perform the best in 2017.

2016 Performance Rank Top-Level Strategy 2017 Performance Rank Prediction

1 Event Driven Strategies 3

2 Credit Strategies 7

3 Macro Strategies 2

4 Multi-Strategy 4

5 Equity Strategies 15 Equity Strategies 1

6 Relative Value Strategies 6

7 Managed Futures/CTAs 5

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Fund Manager Plans for New Hedge Fund L hLaunches

11%37%26%

14%

37% of respondents are planning to launch a new 

fund in 2017

7%5%

of which66% 

are planning to launch in Q1 2017

11%26%

and28% 

reported that it would be a new strategy for Equity Strategies Macro StrategiesEvent Driven Strategies Credit StrategiesRelative Value Strategies Managed Futures/CTAsMulti‐Strategy

reported that it would be a new strategy fortheir firm

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Data Sourcesata Sou ces• Free reports available from www.preqin.com/research

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