Hedge fund flows turn positive in February ending five-month redemption trend

Hedge fund flows turned positive in February, as a January stock market rebound, hopeful signs in US-China trade talks and indications of a pause in US interest rate hikes spurred investors to reverse a five-month trend of net redemptions.

The hedge fund industry posted USD12.1 billion in net inflows in February, a significant improvement from January’s USD24.1 billion in redemptions. February’s inflows represented 0.4 per cent of hedge fund assets, according to the Barclay Fund Flow Indicator, published by BarclayHedge, a division of Backstop Solutions.

Data from the nearly 6,000 funds included in the BarclayHedge database showed hedge funds in most regions of the world (excluding CTAs) experiencing net inflows in February.

“A January stock market rebound buoyed investor sentiments,” says Sol Waksman, president of BarclayHedge. “The US Fed’s signalling a rate hike pause was another positive, as were indications of a thaw in US-China trade negotiations and positive economic signs in Latin America. In the aggregate, the positives outweighed concerns over the risk of a global economic slowdown, tightening financial conditions in some emerging markets and, of course, the continuing uncertainty over the UK’s Brexit.”

For the 12 months ending 28 February, the redemption trend still held firm, with net redemptions for the period totalling USD123.2 billion, 4.2 per cent of industry assets. Total hedge fund industry assets stood at nearly USD2.96 trillion as February closed.

Macro funds continued to pace the hedge fund field for inflows for the 12-months ending Feb. 28, adding USD13.2 billion, 6.4% of assets. Event Driven funds added nearly USD5.6 billion – 3.9% of assets – over the 12 months, while Merger Arbitrage funds experienced more than USD1.9 billion in inflows, 2.9% of assets.

While several other sectors experienced net inflows over the 12-month period, they were outnumbered by funds experiencing net redemptions over the 12 months.

“Bond market volatility driven by tighter monetary policies and a flattening yield curve put pressure on some sectors, as did 2018’s equity market volatility,” said Waksman.

Among those sectors were Fixed Income funds, which experienced nearly USD28.8 billion in redemptions over the 12-months ending 28 February, a 5.2 per cent decline in assets, and Balanced (Stocks and Bonds) funds, which saw USD27.5 billion in redemptions over the 12-month period, an outflow of 12.5% of assets.

Across regions of the world, net inflows were the norm in February, with US and Offshore Islands funds in particular benefitting from favourable market and government news. US funds realised more than USD13.9 billion in inflows for the month, adding 0.9 per cent to assets. Hedge funds in Continental Europe, China/Hong Kong, Latin America and Asia Excluding China/Japan added to assets in February as well. Meanwhile, Brexit considerations appeared to be a continued weight on UK and Offshore Islands funds which experienced USD3.6 billion in net redemptions in February, a drop of 0.6 per cent of assets.

For managed futures funds, the redemption trend continued in February, with the month representing the tenth straight of net outflows for CTA funds. February’s USD2.0 in redemptions represented 0.6% of CTA fund assets. Over the 12 months through the end of February, CTA funds experienced USD12.7 billion in net redemptions, 3.4 per cent of industry assets, with CTA funds finishing February with USD351.1 billion in net assets.

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