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Hedge fund redemption trend extends to four months in September

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The hedge fund industry’s redemption trend continued in September as a fourth straight month of net outflows saw monthly redemptions increasing to USD14.7 billion.

September’s redemptions represented 0.5 per cent of hedge fund industry assets and were up from August’s USD11.3 billion in net outflows, according to the Barclay Fund Flow Indicator published by BarclayHedge, a division of Backstop Solutions.

Coupled with a USD9.1 billion trading profit in September, hedge fund industry assets stood at more than USD3.05 trillion at the end of the month.

September’s redemptions reflected investors’ response to a summer of equity and bond market volatility and a variety of troublesome economic indicators emerging from the US, the UK, Europe and China. Every region of the world experienced net hedge fund outflows for the month.

Data from the nearly 6,000 funds (excluding CTAs) included in the BarclayHedge database showed investors pulling more than USD7.3 billion from funds in the UK and its offshore islands in September while US hedge funds experienced more than USD1.3 billion in redemptions. Meanwhile, hedge funds in Continental Europe shed more than USD937.2 million during the month, while outflows from funds in China and Hong Kong totalled USD636.3 million.

“The story of the summer seemed to be that every positive bit of economic news was offset by a worrisome report or event,” says Sol Waksman (pictured), president of BarclayHedge. “Equity markets were buoyed by anticipation of a Fed rate cut one day, then rattled by fears of heightened US-China trade tensions the next. Brexit uncertainty may have become a familiar refrain, but familiarity makes it no less a concern for UK hedge fund investors. Meanwhile manufacturing downturns in the US, China, the U.K. and the Eurozone prompted concerns about a slowing global economy.”

For the 12-month period through September 30, the hedge fund industry experienced USD169.7 billion in redemptions, 5.5 per cent of industry assets. A USD72.7 billion trading profit over the period brought total industry assets to more than USD3.05 trillion as September closed, down from USD3.08 trillion at the end of August.

Outflows were the norm for the lion’s share of hedge fund sectors for the 12 months ending September 30, though a handful experienced inflows over the period. Sectors posting inflows were led by Macro funds, which brought in USD16.5 billion over the 12 months, 8.1 per cent of assets, and Event Driven funds, with USD15.3 billion in inflows, 10.2 per cent of assets.

Hedge fund Sectors with the largest 12-month outflows continued to be those with sizeable exposure to equity and bond market volatility. Equity Long/Short funds experienced USD38.8 billion in redemptions over the 12 months, 17.2 per cent of assets, Equity Long Bias funds saw USD32.0 billion in outflows, 9.3 per cent of assets, and Balanced (Stocks & Bonds) funds saw investors pull USD24.7 billion from the sector, 9.8 per cent of assets.

Managed futures reversed a 14-month redemption trend in September with USD2.6 billion in inflows, 0.9 per cent of industry assets. A USD500 million trading loss left industry assets at USD308.4 billion as September closed, up from USD304.3 billion a month earlier.

“In a climate of mixed economic signals, CTAs’ role as a portfolio diversification tool came to the fore in September,” says Waksman.

The CTA industry was split by region between net inflows and net redemptions. CTAs in the US and its offshore islands took in nearly USD2.0 billion in September, 1.0 per cent of assets, while funds in the U.K. and its offshore islands added nearly USD804.0 million, 1.4 per cent of assets. On the redemption side of the ledger, CTAs in Continental Europe experienced USD158.6 million in redemptions, 0.4 per cent of assets, while investors pulled USD116.9 million, 1.5 per cent of assets, from funds in Asia excluding China and Japan.

For the 12 months ending 30 September, CTA funds experienced USD22.5 billion in redemptions, 6.3 per cent of industry assets. A USD13.2 billion trading profit over the 12 months contributed to the industry’s USD308.4 billion in total assets at the end of the month.

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