If you have tracked the news flows about various forms of asset management and investing tools over the years, you have seen a wild swing over the past couple of decades. Old-school mutual fund management that dominated for decades has migrated to a world that is focused on exchange traded funds (ETFs). And then there is the case of hedge funds, which are supposed to be run by the smartest financial whizzes of them all.

Hedge funds have run into their share of controversy in recent years. It has proven to be harder and harder to consistently outperform the markets and to continually deliver absolute returns regardless of market conditions. This has also created an environment in which public pension funds have become vocal against using hedge funds due to what can be astronomical management fees and a lack of returns.

Then there is the carried interest argument that has dominated political rhetoric. We’ll leave that one alone for now.

With all the pressure and malaise in the world, it is hard to imagine but the hedge fund industry reached a record asset base in the third quarter. Hedge Fund Research (HFR) showed that over $21 billion was withdrawn from the hedge fund industry’s largest firms in the third quarter of 2016. Still, steady performance gains managed to offset the continued investor outflows.

In the third quarter of 2016, the total hedge fund industry capital reached a record $2.972 trillion. This was up $73.5 billion from the prior quarter.

The HFR Global Hedge Fund Industry Report showed that the previous record was in the second quarter of 2015 — at a sum of $2.969 trillion. The HFRI Fund Weighted Composite Index also rose by 2.9% in the third quarter, and it also tracked seven consecutive months of gains. The year-to-date performance was a 4.2% gain.

Note that the third quarter of 2016 marked the fourth consecutive quarter of investor outflows. Redemptions increased to $28 billion in the third quarter alone, about 1% of total industry capital. Still, the performance overshadowed the redemptions. Here is what really stands out, with the report saying:

This represents the largest quarterly outflow since 2Q 2009 and brings 2016 YTD outflows to $51.5 billion. Investor outflows and liquidations were concentrated in several of the industry’s largest and most well-established firms; nearly $22 billion of net capital was redeemed or returned from firms with over $5 billion in assets under management. Firms managing between $1 and 5 billion saw net outflows of $7.4 billion, while firms managing less than $1 billion experienced a small net inflow.

As far as stock and bond allocations, here is how the inflows and outflows looked:

• Equity hedge funds are the largest concentration of strategy. This rose by $27.6 billion to $841.6 billion. Investor outflows were $9.4 billion in the quarter.
• Fixed income-based Relative Value Arbitrage strategies saw an increase in total assets, with capital rising by $19.5 billion to $804 billion.

HFR tracks the hedge fund industry and is a provider of hedge fund index information. It has over 150 indexes across the world for hedge fund benchmarking and performance measurement.

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