Investors redeemed a net USD20.70 billion from hedge funds in June, bringing second quarter net flows to negative USD10.68 billion and first half net flows to negative USD27.95 billion, according to eVestment’s latest Hedge Fund Industry Asset Flows Report.
The redemptions saw global hedge fund assets drop below USD3 trillion again to USD2.99 trillion.
June redemptions were the largest June since eVestment began tracking monthly flows in 2009. Q2 outflows were not near historic, but were the industry’s third straight quarter of redemptions, which has not occurred since Q2 2009 (last of four quarters of redemptions). The first half was the only other negative H1 on record next to H1 2009.
What made redemptions from the industry in June different than all other months of 2016 was that it was the first month of 2016 when large funds that performed well in 2015 had aggregate redemptions. This is an indication that as redemption pressures from poor 2015 performance appeared to abate in April and May, negative sentiment related to 2016 performance may be rising.
Given that redemption notices tend to be a minimum of one month (shorter for macro/managed futures, longer for event driven), it is unlikely the industry’s June/Q2/H1 flows were materially impacted by the recent Brexit vote, the report says.
Long/short equity strategies had the largest aggregate redemptions in June. Performance declines in H1 are likely the primary reason for the elevated outflows. The 10 long/short equity funds with the largest outflows in June returned an average of -6.13 per cent in Q1, and -8.27 per cent YTD. Conversely, the ten funds with the largest inflows in June returned an average of +4.55 per cent in 2016.
Multi-strategy hedge funds, which tend to have redemption notice requirements of 45 days or more, had their largest monthly outflows since December 2014 and second largest since December 2012. Both prior larger monthly redemptions occurred at year-end dates. For a non-year end level of outflow to exceed June, we have to go back to the heart of the European sovereign crisis in April 2012.
The darlings of the post-Brexit market volatility, managed futures hedge funds, faced mixed flows in June. The slight net inflow of USD410 million includes some large fund-specific redemptions, which is not surprising after three consecutive months of aggregate performance losses, the report says.
Investor interest in managed futures strategies is at a crossroads; the group had the largest inflows in H1 2016 and second largest in 2015, the three-month pre-Brexit string of losses put an exclamation point on a volatile last 12 months of returns, but then they outperformed all other strategies by far in the wake of the Brexit “Yes” vote. Investors have to weigh performance consistency, against the desire for less correlated strategies. For now, flows are reacting to negative returns, but the coming months will show which is more important to investors, eVestment says.
Commodity fund flows were positive again in June, the ninth month of inflows in the last 10. Performance for the universe was strong in June, which should keep investor sentiment positive. Commodity funds are one of the few bright spots for the industry in 2016.
Credit hedge fund flows were generally negative in June and Q2, despite a recent string of strong relative returns. It has been the abundance of opportunities in post-crisis environments that has historically brought large investor commitments into credit strategies. The recent good returns have been more so about either concentrated events, or the realisation of targeted opportunities like those in energy credits. While investors have likely been pleased with recent returns, the somewhat indifferent-seeming recent flows reflect an anticipated dearth of widespread opportunities.
Aggregate macro hedge fund flows shifted back to negative again in June after a two-month reprieve. Money continues to be removed from large funds which lost money in 2015.
Unfortunately for macro investors, and ultimately for the macro universe, of larger funds (>USD500million) reporting through June, the 10 best performers of 2016 have seen investors remove over USD7 billion during the year, and the 10 worst performers have received allocations of nearly USD4.5 billion.
Event driven funds continue to see assets removed. Net outflows of USD2.97 billion in June result in USD6.73 billion removed in Q2 and USD27.06 billion removed in 2016. The largest redemptions during the year have been from big funds that underperformed last year. However, there has been a lot of money removed from funds that produced decent returns in H1 2016.
