Hedge fund redemptions spike in September, but slow quarter on quarter
Hedge fund redemptions grew in September to $48.59 billion (0.98% of industry assets), according to the Barclay Fund Flow Indicator published by BarclayHedge. A $185.16 billion trading loss during the month brought total hedge fund industry assets to $4.71 trillion as September ended.
Except for a handful of sub-sectors, net redemptions were the norm across the hedge fund industry in September with only three sub-sectors managing to buck the trend: Option Strategies funds, attracting approximately $420 million (0.79% of assets); Emerging Markets – Asia funds added approximately $350 million (0.22% of assets); and Merger Arbitrage funds which brought in approximately $170 million (0.15% of assets).
Among the sizeable majority seeing September outflows, nominal losses were largest from Fixed Income funds which saw $16.04 billion exit (1.75% of assets). Other sub-sectors seeing significant dollar contractions included: Multi-Strategy funds which hemorrhaged $9.01 billion (1.28% of assets); Equity Long Bias funds absorbed $4.15 billion in outflows (1.30% of assets); and Global Macro funds saw $3.57 billion exit (1.78% of assets).
Proportionally speaking, however, Distressed Securities funds were by far the hardest hit in September, reporting net outflows of $900 million reflecting a contraction of 5.66% in the sub-sector’s assets. While the impact was around half as painful, Equity Market Neutral funds also took a substantial blow with $1.23 billion more flowing out than in, marking 2.37% a reduction of the sub-sector’s assets.
The managed futures industry recorded a fourth consecutive month of net outflows with $1.89 billion in redemptions (0.48% of assets), closing out a third quarter that proved to be the most challenging since Q1 2020, which marked the onset of the global pandemic era. At quarter end, the managed futures industry had lost $11.28 billion more investor assets than it had attracted.
The Discretionary CTAs and Multiadvisor Futures Fund sub sectors both enjoyed healthy asset growth in September of +6.03% and +2.11% respectively, totalling net subscription activity in excess of $2 billion. Nevertheless, Hybrid CTAs bled out more investor dollars than they attracted in September, losing approximately $130 million (0.60% of sub-sector assets) and the much larger Systematic CTA sub-sector reported net outflows of -$3.41 billion (-0.96% of sub-sector assets). As a result, September’s overall result was aggregate net outflows for the industry.
For the 12-months through September, the hedge fund industry experienced $178.38 billion in redemptions (3.93% of industry assets). A $558.55 billion trading loss over the period dragged total industry assets down to the $4.71 trillion figure at the end of September, down from $4.96 trillion in August but up from $4.66 trillion a year earlier.
Despite the net loss of more than $9 billion worth of investor capital in September, Multi-Strategy funds remained the 12-month inflow leader among a shrinking pool of hedge fund sub-sectors enjoying net inflows for 2022. On the year, Multi-Strategy funds are still working with more than $23.63 billion in net subscriptions, (+4.99% of assets). Then there are the Merger Arbitrage funds, which have raked in $11.90 billion and increased its assets by +13.27% in 2022. Convertible Arbitrage funds are in third position (nominally) with +$5.38 billion in net inflows, but strongest overall with a proportional +16.60% increase in sub-sector assets. The other sub-sectors with a strengthening mandate in 2022 include Option Strategies funds, adding +$2.10 billion (+4.48% of assets) and Sector Specific funds bringing in +$1.48 billion (+0.41% of assets).
A significant majority of hedge fund sub-sectors are in the red for 2022 with respect to net redemptions.
In dollar terms, no other sub-sector is as far in the hole as Fixed Income funds, with $90.89 billion in net redemptions (-9.28% of assets). Fixed Income’s closest nominal competition comes from Balanced (Stocks & Bonds) funds which have seen $23.24 billion in net outflows (3.45% of assets). Also among the red brigade are the Emerging Markets – Global funds and Equity Long Bias sub-sectors: the former having shed $21.98 billion in unmitigated redemptions for a loss of 10.76% of its assets, and the latter losing $19.67 billion in investor capital (5.39% of assets).
Over the 12 months through September, the managed futures industry saw $6.46 billion in redemptions (1.88% of industry assets). A $55.33 billion trading profit over the period contributed to the $404.88 billion in total CTA industry assets, up from $355.85 billion a year earlier. Consistent profitability and new fund creation have buoyed the industry’s total assets against the net redemption trend we’ve observed throughout the fall.
Recording 12-month inflows over the period were Discretionary CTAs which added $6.73 billion in net subscriptions, swelling the sub-sectors’ assets by +41.22%. Multi Advisor Futures Funds meanwhile, have picked up $3 billion in net subscriptions, boosting that sector’s assets by +23.06%. Hybrid CTAs have also shown a growth in investor interest, though to a less impressive degree, with managers in this sub-sector seeing inflows amounting to $590.0 million or (+3.14% of assets).
Only Systematic CTAs have suffered more redemptions than subscriptions with the sub-sector booking net redemptions totalling $13.86 billion, equivalent to a 4.41% reduction in assets.
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Disclaimer: this publication does not constitute legal or professional advice and should not be relied on as such.