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European retail hedge fund assets at eight-year low, says Kepler

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A combination of higher interest rates and lagging performance has prompted European retail investors to reduce their hedge fund investments, with assets under management in alternative UCITS currently at an eight-year low, according to data from Kepler Absolute Hedge.

According to data from the research provider, assets in alternative UCITS funds in Europe shrank to $236.3bn at the end of March, a fall of 3% from three months earlier. The decline was also faster than that seen in the previous two quarters, according to Kepler.

In absolute terms, redemptions were largely concentrated, with multi-asset/macro funds accounting for $3.5bn (47%) of the drop and event-driven managers accounting for $1.7bn. Within these strategies, a handful of ‘bellwether’ funds experienced most of these outflows, with several relevant closures.

However, some strategies saw their AUM grow during Q1, including credit, managed futures and volatility arbitrage, driven by a combination of positive performance and robust investor demand.

UCITS funds, which are heavily regulated to make them safer and more accessible to the public, place restrictions on the leverage and risk-taking that enable other hedge funds bought by institutional investors to juice their returns.

UCITS funds tracked by Kepler averaged a 2.9% return in the first three months of the year, compared with a 4.4% averaged return for the wider hedge fund industry, according to research firm HFR.

Systemic strategies stood out in performance terms with seven of the 10 top performing funds falling into this category. Growth-oriented equity specialists were also well-positioned as they capitalised on the AI-driven rally. The AH Managed Futures Index also experienced its best Q1 performance on record (+7.9%).

On a less positive note, ESG exposures were once again core drivers of underperformance, while some macro managers incurred losses from wrong-footed positioning (short equities and/or long duration).

The market backdrop for new launches remains challenging, with relatively subdued launch activity in Q1, according to Kepler, with just three new funds having come to market during the quarter.

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