Investors have continued to withdraw capital from hedge funds following disappointing returns – but newly-launched products aimed at tapping into this year’s market dislocations could be boosting renewed allocator interest, new research by eVestment shows.
Investors have continued to withdraw capital from hedge funds following disappointing returns – but newly-launched products aimed at tapping into this year’s market dislocations could be boosting renewed allocator interest, new research by eVestment shows.
Investors pulled an estimated USD18.1 billion out of hedge funds last month, with overall industry flows now negative at -USD31.1 billion since the start of 2020, according to eVestment data.
While allocators see certain hedge fund strategies as particularly well-positioned as 2020’s midway point approaches – notably credit-focused funds targeting distressed opportunities – others, such as some macro managers, continue to count the cost of Covid-19’s impact on returns.
With recent performance lifting industry-wide hedge fund AUM to just below USD3 trillion, Peter Laurelli, global head of research at eVestment, indicated there are other segments where investors seem content not to react, despite notable losses.
“In general, it appears investors are not reacting anywhere near as swiftly or as significantly – though redemptions for some managers likely feel significant – as in 2008/2009,” Laurelli observed of recent outflow patterns.
“Again, this is a different industry with a different investor base compared to back then; however what is clear is that dissatisfaction with returns is a theme which never changes.”
Delving deeper into the numbers, Laurelli noted that capital withdrawals from big hedge fund firms continued at a “very elevated rate” during April, indicating sustained targeted redemptions among specific larger managers.
The percentage of large funds running more than USD1 billion in assets which lost more than 5 per cent of their AUM due to redemptions did not decline meaningfully in April, the data noted.
Strategy-wise, the primary source of targeted redemptions in April has been among large macro managers, with many suffering “meaningful” outflows. Overall, outflows from macro hedge funds hit almost USD9.2 billion last month, bringing year-to-date macro outflows to USD22 billion.
“Performance has absolutely been an influence,” Laurelli said of the macro malaise.
Elsewhere, redemptions have also continued in long/short equity hedge funds, with two-thirds (66 per cent) of long/short equity managers suffering net withdrawals since the start of the year, and about 62 per cent with outflows in April. Overall, investors took out USD1.93 billion from long/short strategies in April, though year-to-date flows are positive at about USD720 million
“What we haven’t seen in this space is the kind of large targeted redemptions we’ve seen from some macro strategies,” Laurelli observed.
“The implication being that while yes, money is coming out of long/short equity as the COVID-19 crisis continues, the largest long/short managers who have received the bulk of the inflows in the last year or so are not facing the same pressures as some of the largest macro managers, despite producing losses this year.”
On the flipside, investors are starting to allocate opportunistically to those hedge fund managers who readying products aimed specifically at capitalising on the recent dislocation, such as credit-focused strategies in expectation of a rising in defaults and deteriorating credit qualities. Distressed strategies drew USD1.51 billion of inflows in April, and are now positive USD0.72 billion for the year, while event driven funds attracted USD0.45 billion, with total 2020 inflows now standing at more than USD4.6 billion.
