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Hedge fund redemptions spike in September, but slow quarter on quarter

Updated: Apr 9

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.

Source: Hedgeweek

IMS is one of the longest established company management firms in the Cayman Islands. IMS is licensed by the Cayman Islands Monetary Authority to provide independent directors, company management and incorporation, mutual fund administration, captive insurance and trust services. For more information about our services, please contact us.

Disclaimer: this publication does not constitute legal or professional advice and should not be relied on as such.

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