Total hedge fund industry capital increased to a third consecutive quarterly record in the first quarter (1Q17), as investors increased allocations to event-driven and quantitative, trend-following systematic macro strategies.
Industry assets ended 1Q17 at $3.07 trillion, a quarterly increase of $47.2 billion (1.6%), according to the latest HFR Global Hedge Fund Industry Report, released last week by HFR, a firm that deals with indexation, analysis and research of the global hedge fund industry.
In the trailing 12 months, total hedge fund capital has increased by 7.3%. Investor outflows in 1Q17 slowed to the lowest level since 4Q15.
Equity AUM as percentage of market cap at new peak
For the fifth straight year, average assets under management (AUM) of Indian mutual fund industry have risen.
According to a Motilal Oswal Securities Ltd (MOSL) report, average AUM increased by 35% year-on-year (y-o-y) to touch an all-time high of Rs18.3 trillion in FY17.
Equity AUM rose for the fourth consecutive year to touch a new high of Rs4.8 trillion, led by a rise in market indices and higher equity schemes sale.
With that, equity AUM as a percentage of India’s market capitalization increased 40 basis points y-o-y to 4% in FY17, an all-time high.
The rise in AUM can be primarily attributed to inflows in income, equities, liquid and balanced categories, as domestic investors preferred SIPs (systematic investment plans) and income/liquid schemes over traditional bank deposits.
Cost of equity highest for realty, lowest for FMCG
India’s average cost of equity has remained constant at around 15% since 2014; however, the cost of equity *across sectors has varied, showed EY’s ‘Cost of Capital, India Survey 2017’.
Cost of equity refers to the return that a company needs to pay to its investors for the risk they undertake by investing their capital.
According to the survey, sectors that had relatively lower return expectation have seen an increase in the cost of capital, while those with a relatively higher return expectation have seen a decline.
Highest cost of equity is in the real estate sector, followed by engineering, procurement and construction (EPC) and oil and gas.
On the other hand, lowest cost of equity is noted in fast-moving consumer goods (FMCG) and capital goods sectors.