Investors flee equity and macro hedge funds, as 2020 heralds “career-defining moments” for many managers
Investor withdrawals from hedge funds are stacking up, with asset flows set to finish the year in negative territory “barring a holiday-season miracle”, eVestment warned on Thursday.
Allocators yanked more than USD5 billion from hedge funds last month, with industry outflows in the 10-month period to the end of October reaching almost USD55 billion. Total hedge fund industry assets now stand at USD3.148 trillion globally, according to new eVestment research.
Year-to-date outflows – which number USD54.67 billion – are still dwarfed by the 2019’s withdrawals, which hit USD102.25 billion, indicating hedge funds have at least partly stemmed the tide of investor redemptions this year.
At the same time, a large number of hedge fund strategies which have shown consistent and strong performance this year are being rewarded with new capital allocations, according to Peter Laurelli, global head of research at eVestment.
eVestment’s latest ‘Hedge Fund Industry Asset Flow Report’ for October said the industry is “holding up better than it had in 2019 and 2016”, but noted there has not been a positive net flow for hedge funds to end a year since 2010.
Barring a holiday-season miracle, overall hedge fund asset flows for 2020 will be negative too, eVestment said.
“One theme which has defined the year for hedge fund flows in 2020 is that those who have been able to navigate a tumultuous set of market conditions have been rewarded, and those who have not are experiencing significant consequences,” Laurelli said.
“We’ve seen this play out across multiple strategies and persist over many months. For managers on both sides of the coin, 2020 seems to be producing career-defining moments.”
Multi-strategy hedge fund managers drew USD2.45 billion of new capital in October, though flows for the year remain marginally in the red to the tune of USD370 million.
In contrast, long/short equity – a core component of the hedge fund industry globally – suffered the biggest withdrawals last month, with investors removing USD3.04 billion. A total of USD14.04 billion has now been pulled out from this strategy during 2020.
However, eVestment data highlighted the close relationship between asset flows and performance. Of the long/short equity hedge funds with the ten largest inflows in 2020, only one is down for the year, with the group’s average gains around 15 per cent. Similarly, all but one of the long/short equity strategies with the ten largest redemptions are in negative territory YTD, with each suffering steep losses.
Meanwhile, 2020 is set to be one of the worst years on record for macro hedge fund flows, with allocators pulling out more than USD19 billion so far this year, including USD2.5 billion last month alone.
“While some are having a very difficult year, there are macro managers who have done well in 2020 and some of those managers are seeing new allocations come in, but it is nowhere near the level of outflows,” eVestment noted, adding the withdrawn capital does not appear to be circling back into the strategy.
“While the metrics for the industry are negative overall, they’re not as bad as they were in 2019 and there are many signs of success, but for some macro strategies 2020 is the most difficult year in a long, long time.”