http://pbhfa.org/2016-institutional-demand-expected-to-drive-hedge-fund-inflows/ Two large drivers of the composition of institutional portfolios are relative performance and asset allocation policy shifts. One of the largest influences on the distribution of assets in the last two years has been the relative strength of US equities. In the three years leading into 2015, in USD terms, the S&P 500 outperformed most major regional equity exposures and fixed income sectors. As a result, institutional portfolios could either passively become very overweight US equities, significantly adjust allocation policies (actively choose to become overweight US equities), or redistribute gains to remain within limits of desired exposures around the world and across asset classes. The first option is not desirable, the second takes time, but the can be executed in the near-term. In 2015 alone, through Q3, traditional US equity products reporting to eVestment have seen outflows of $212 billion. In 2014, the universe had net outflows of $220 billion and in the last three years there has been nearly $630 billion removed from traditional US equity products. The relative strength and redistribution of gains from US equities has provided a base to support the hedge fund industry’s average growth of near $70 billion/year over the last three years.
There's another side to that story. ~70% of HF's AUM is pensions and institutions, they are unwinding and it will take well into this year for some of the bigger ones to complete. Yield will be a bitch this year and alpha almost impossible as the volatility will be > and they can't move fast enough to catch it. They are too correlated to index benches, everything else presents a high risk profile in the environment we will experience this year. http://wolfstreet.com/2016/01/11/the-era-of-hedge-fund-dazzle-has-peaked/