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Hedge funds return to net redemptions in March, but with a regional twist

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Hedge funds proved unable to turn February’s net inflows into a two-month trend, as March saw USD11.0 billion in hedge fund redemptions worldwide, a dramatic shift from February’s USD12.1 billion in inflows.

Hedge funds’ March outflows represented 0.4 per cent of hedge fund assets, according to the Barclay Fund Flow Indicator, published by BarclayHedge, a division of Backstop Solutions.

March redemptions were fuelled by investor fears of a global recession, but also by local factors that made the bulk of redemptions a regional affair.

Data from the nearly 7,000 funds included in the BarclayHedge database showed hedge funds in most regions of the world actually experiencing net inflows in February. But sizeable redemption activity in the UK and its offshore islands and Continental Europe – along with a much smaller outflow amount from hedge funds in Asia excluding China and Japan – tipped the balance worldwide to the redemptions side of the ledger.

“Ultimately, gains in US equity markets and positive signs in US-China trade talks weren’t enough to offset investors’ ongoing concerns over the absence of a clear solution to the UK’s Brexit dilemma and an economic slowdown in the Eurozone,” said Sol Waksman, president of BarclayHedge. “News that Italy tipped into recession at the end of 2018 only added to investors’ worries.”

For the 12 months ending March 31 the hedge fund industry reported net redemptions of USD140.3 billion, 4.7 per cent of industry assets. Total hedge fund industry assets stood at USD3.01 trillion as March closed.

Macro funds set the inflow pace over the 12 months ending in March, taking in USD13.1 billion over the period and adding 6.3 per cent to assets. Event Driven funds saw USD5.4 billion in inflows, 3.8 per cent of assets, over the 12 months, while Merger Arbitrage funds reported USD468.4 million in inflows, 0.7 per cent of assets over the period, and Emerging Markets – Asia funds added USD79.3 million, 0.1 per cent to assets over the 12 months.

Bond and stock market volatility fuelled net redemptions in several other sectors over the 12-month period. “While a yield curve inversion late in March can’t be blamed for March redemptions, the flattening yield curve and bond and market volatility that preceded it can,” says Waksman. “And many funds are still trying to make up ground lost to 2018’s equity market volatility.”

Fixed Income funds gave up nearly USD29.0 billion over the 12-month period, 5.2 per cent of assets, while Balanced (Stocks & Bonds) funds, saw nearly USD27.1 billion in redemptions over the 12 months, 10.8 per cent of assets.

Meanwhile, tighter US monetary conditions and the US China-trade war challenged emerging markets over the past year, challenges that translated to several emerging markets hedge fund sectors, including Emerging Markets – Global funds which experienced nearly USD12.8 billion in redemptions, 9.0 per cent of assets, over the 12-month period ending 31 March.

Redemptions from hedge funds in the UK and its offshore islands totalled USD9.4 billion in March, 1.7 per cent of assets, while hedge funds in Continental Europe shed 0.7 per cent in assets in March through more than USD5.0 billion in outflows, more than offsetting inflows in other regions of the world. Hedge funds in Asia excluding China and Japan also experienced USD297.6 million in March redemptions, 0.7 per cent of assets.

The US Fed’s indications of a pause in interest rate hikes and continued optimism over U.S.-China trade talks helped hedge funds in the US and its offshore islands take in more than USD1.1 billion, 0.1 per cent of assets, in March, while China and Hong Kong experienced nearly USD890.7 million in inflows, 1.5 per cent of assets.

For managed futures funds, the redemption trend continued for an eleventh straight month in March with USD1.9 billion in CTA outflows, 0.5 per cent of assets. Over the 12 months ending March 31, CTA funds experienced USD14.3 billion in net redemptions, 3.9 per cent of industry assets. Total CTA assets stood at USD322.9 billion at the end of March.

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