Investors redeemed an estimated net USD25.2 billion from hedge funds in July on the back of outflows of USD23.5 billion in June, according to eVestment’s latest Hedge Fund Asset Flows Report.
The latest wave of redemption pressure brings year-to-date flows to a negative USD55.9 billion.
In terms of cumulative magnitude, the redemption pressures facing the hedge fund industry in the last two months are reminiscent of the second half of 2011, when in a four month span investors redeemed an estimated USD42.0 billion. Unless these pressures recede, 2016 will be the third year on record with net annual outflows, and first since the outflows in 2008 and 2009, a result of the global financial crisis.
eVestement says investor redemptions from the industry continue to be driven by mediocre performance. Funds producing losses in 2015 are by far the primary source of outflows throughout the year into July. Additionally, in both June and July, redemptions have accelerated from within funds producing losses in 2016. Funds reporting the 10 largest outflows in July have returned an average of -4.1 per cent YTD, with average losses of -5.3 per cent concentrated in Q1.
Many funds have received new allocations in 2016, including both June and July. The 10 largest allocations in the last two months have gone to funds which have produced an average return of nearly 7 per cent this year, and produced positive returns on average in 2015.
Commodity funds are one segment which has consistently attracted new allocations in 2016, including both in June and July. Investor sentiment to commodity funds has been positive for the last 14 months, during which time investors have added an estimated USD10.3 billion.
Managed futures funds have been another aggregate bright spot for flows in 2016. This segment has been supported by some commodity-focused funds operating in futures markets. With those products excluded, redemption pressures are emerging within a few of the large, archetypal managed futures funds. This is most likely due to elevated losses in the span of March to May.
Multi-strategy hedge funds, which tend to have redemption notice requirements of 45 days or more, had another large month of outflows in July. The last time non year-end monthly redemptions were near these levels were at the heart of the European sovereign crisis in April 2012.
July was a huge month of redemptions from credit strategies, the universe’s largest non year-end redemptions since September 2011. Again, performance was at the heart of the redemption pressures.
Event driven and macro funds were where redemptions were largest on a strategy level. Many credit strategies fall into the event driven category, however redemptions in both June and July have come from activist strategies and special situation credit funds alike.