Skip to main content

Hedge Funds Enjoy First Quarter Of Net Inflows For Two And A Half Years

Investors removed an estimated $9.66bn from hedge funds in September but that was not enough to prevent the industry enjoying its first quarter of positive net inflows since the first quarter of 2018. Data from eVestment suggests that $8bn was allocated to hedge funds in the third quarter of the year, although year to date the industry is still seeing net outflows of -$47.75bn. Net industry assets stand at $3.161trn.

Leading the way strategy-wise in September were equity market neutral funds, with $1.46bn of inflows. Equity long/short and Event Driven were the other winners amongst the primary strategies tracked by eVestment; the rest - Convertible Arbitrage, Distressed, Relative Value Credit, Managed Futures, Multi-Strategy, Directional Credit and Macro all saw money pulled by investors. Event Driven strategies have added $6.88bn in 2020 through the end of September, making it one of only two strategies to see net inflows this year (Convertible Arbitrage being the other).

Trends in Macro hedge funds are of particular interest. Net flow in Q3 for macro funds was positive at +$1.48bn, but there were some large and concentrated redemptions over the last three months and Macro strategies suffered -$5.17bn of outflows in September.

"Just looking at September’s data, there is some pretty clear evidence of the influence of near-term performance on allocations. For example, of the ten funds with the largest inflows, nine have posted positive results this year and the one which hasn’t is basically flat. Of the ten with the largest redemptions in September, eight are negative YTD with average losses of -7.40%. With losses continuing among that latter group into September, the remainder of the year may be rocky for some macro funds."

Managed futures strategies also turned red in September, after 3 months of inflows.

"Funds with the largest redemptions in September are also among those with the largest outflows YTD, and vice versa. The indication is that there are groups of managed futures funds which have consistently been in favour with investors, and out of favour in 2020. While outflows appear to be performance driven (every product producing 2020 results worse than -10% has faced redemptions, and all ten of the largest redemptions are from funds negative for the year), the opposite isn’t as absolute. Over the last three years there has been a wide range of returns from within the managed futures segment and while it appears investors are choosing to allocate to some products within the universe, consistently poor relative performance is not being tolerated," says eVestment.

Despite the September pull back in Macro and Managed Futures, the final month of the quarter was a quiet one, according to eVestment.

"Looking at the various metrics to measure general themes, none point to September being anything except a typical quarter-end light redemption month, with the exceptions being among a few large products. The relative volume of flow was not high for a September, meaning general flow activity was near or below normal levels. The proportion of managers with redemptions was over 50%, but near the two-year average. The proportion of funds losing more than 2%& or 5% of AUM to redemptions was not abnormally high. The one metric which was a bit high was the proportion of large funds losing more than 2% of AUM, but it was not especially high. One metric that was elevated was the % of funds gaining more than 5% of AUM from inflows at around 10%, which was driven by allocations to small-to-mid-sized funds."


© The Sortino Group Ltd

All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or scanning or otherwise, except under the terms of the Copyright, Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency or other Reprographic Rights Organisation, without the written permission of the publisher. For more information about reprints from AlphaWeek, click here.