eVestment: Hedge Fund Assets Fall Below $3T in January

Feb 26 2016 | 8:30pm ET

Extraordinary market volatility in January trimmed assets under management at global hedge funds to under $3 trillion through redemptions and portfolio losses, according to the latest Hedge Fund Asset Flows Report from eVestment. 

This is the first time AUM has dropped below $3T since the industry surpassed the milestone in May 2014, according to the report. However, although investor flows were negative in January with an estimated net $21.5 billion redeemed, flows are typically weak in January as investor redemptions from the prior year carry over before new assets are allocated en masse.

Accordingly, February has historically been the barometer month for the year’s flows, said eVestment.

Key highlights of the report include: 

  • Performance losses in January totaled $43.2 billion, which in conjunction with redemptions brought global hedge fund assets down $63.7 billion, dropping total industry AUM to $2.96 trillion, a decline of 2.1%. This is the first time since May 2014 that industry assets have been under $3 trillion.
  • Flows for two of last year’s weakest segments picked up in January. Commodity hedge funds saw inflows of $1.2 billion, the fifth consecutive month of inflows into the segment after a series of redemptions going back to mid-2012 - the shift to positive sentiment for commodity hedge funds is a major trend reversal. Flows to Emerging Markets funds were also slightly positive in January - especially debt. 
  • January’s redemptions of $21.5 billion were the largest in the opening month for the industry since January 2009 and reflect dissatisfaction with losses in 2015. Investors redeemed a significant amount in January from funds that posted losses in 2015 - $24.8 billion. Both large and small funds that underperformed faced redemption pressures. 
  • Among products posting positive returns in 2015, on an aggregate basis, January flows were only positive to the large, best performers (>$1 billion, >5%).
  • Event driven fund flows were highly negative in 2015, particularly toward the end of the year. This redemption pressure continued into January 2016 and it’s clear that performance weighed heavily on investors’ decisions to part ways. Products with negative returns in 2015 accounted for the vast majority of January’s redemption pressures; funds that gained 5%+ in 2015 saw positive investor interest to begin 2016.
  • The long/short equity group experienced elevated redemptions in January and flows were most negative for funds that lost money in 2016. Large funds that produced returns in the 0-5% and >5% range had aggregate inflows in January, but smaller funds (<$1 billion) in each positive performance bracket experienced aggregate outflows.
  • Macro fund flows were essentially flat to begin 2016. Large macro funds with performance declines in 2015 saw $2.3 billion removed in January. The good news for macro managers is that negative sentiment appears to be performance-centric and not strategy specific.
  • Multi-strategy fund flows were slightly negative in January, with less than $1 billion removed to begin the year. Including December’s slight outflow, the period is the segment’s first negative back-to-back months since September 2012.
  • Managed futures fund flows were negative for the third consecutive month in January, albeit only slightly. Interestingly, funds which performed well in 2015, even large funds, faced redemption pressures in January. The universe produced relatively good returns to start 2016, so it will be interesting to see how investor sentiment manifests in February.

On the topic of China, eVestment noted that while overall flows for funds investing in China were positive in January, there did not appear to be any defining characteristic impacting flows. The implication is that China-oriented allocations and redemptions are the fund-specific, rather than any aggregate satisfaction or dissatisfaction with the opportunity set in China.

Atlanta-based eVestment was founded in 2000 by Jim Minnick, Matt Crisp and Heath Wilson. The company boasts one of the most comprehensive global databases of traditional and alternative strategies and provides institutional investment data intelligence and analytic solutions to clients worldwide.

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