Institutional investors withdrew $5 billion from equity strategies in Q1 2012, particularly from underperforming funds, according to the latest data from eVestment Alliance.
The research provider’s data shows that while only 41% of long/short equity funds had net inflows in Q1, 61% of those that ended 2011 with positive results had net inflows while 70% of those with negative results had net outflows. The outflows happened as equity strategies added 0.47% in March and 6.91% for the quarter.
eVestment’s first quarter data also showed that emerging market strategies had net outflows of $0.9 billion, continuing a trend witnessed in the last two quarters of 2011. Emerging markets funds underperformed in March, losing 0.5%, due largely to losses by funds investing in China (down 2.0%) and India (down 3.0%). For the quarter, however, emerging markets strategies were up 8.62%.
Global macro, managed futures and commodity strategies attracted $11.8 billion in Q1 2011, although all three strategies posted losses in March (down 0.70%, 1.01% and 2.04%, respectively, although all had positive results for the first quarter). The March losses were due primarily to dramatic shifts in interest rates and falling commodity prices. Peter Laurelli, eVestment Alliance vice president, said during a Wednesday conference call with reporters that demand for these strategies represented demand for low correlation and good relative performance in difficult equity market environments.
Credit strategies saw net inflows of $19.2 billion, reversing the trend from 2H 2011. Mortgage strategies were among the best performers in 2011 and, so far, have ranked among the best in 2012.
Multi-strategy funds saw net Q1 inflows of $6 billion. Laurelli says such funds are beginning to compete more directly with funds of funds. Laurelli says it’s too early yet for Q1 2012 fund of funds data, but the trend was visible in Q3 and Q4 2011, when multi-strats saw net inflows while funds of funds saw net outflows.
Overall, hedge fund assets declined by $10.5 billion during the month of March to $2.5 trillion, according to eVestment Alliance. Performance accounted for a decline of $4.7 billion and investors withdrew about $5.8 billion.
Laurelli says funds with over $1 billion in assets performed less well than smaller funds in Q1 2012. The large funds added 3.2% for the quarter, while those with under $1 billion AUM gained 5%. He attributed this to the broader exposure of the larger funds, saying that the smaller ones benefited from being highly invested in equities whereas the larger funds suffered for their diversification into commodities and interest rates. On the other hand, he says, for all of 2011, large funds—on an asset weighted basis—ended the year with positive returns while the average hedge fund ended the year with a loss.