eVestment: Hedge Fund Industry AUM Falls Back Below $3T

Jul 26 2016 | 9:20pm ET

Redemptions pulled global hedge fund assets to slightly below $3 trillion again, according to the latest Hedge Fund Asset Flows Report from industry data provider eVestment. 

The report, which captures activity for the month, the second quarter and the first half of 2016, shows industry assets dipping to $2.99 trillion as of the end of June on investor withdrawals of $20.7 billion. It was the largest dip in a June period since eVestment began publishing the report in 2009, the company said, and one of the largest non year-end outflows since prior crisis periods of 2011 and 2009.

Importantly, since redemptions tend to be filed at least one month in advance, asset flows related to Britain’s Brexit vote at the end of June are yet to be tallied.

Despite improved overall performance when compared to the start of the year, net asset flows were negative in Q2 for the third consecutive quarter, while flows for the full first half were negative for only the second time on record, eVestment’s research showed. Outflows were highest among equity-focused strategies, including long/short and event driven funds, while commodity funds continue to attract new assets, gaining $3.32 billion in Q2 as positive sentiment entered its 10th consecutive month.

"With some exceptions, this was not a good month, quarter, nor first half for the industry," said Peter Laurelli, global head of research for eVestment. "Investors are clearly dissatisfied not only with 2015 returns, but also with performance from portions of the industry in 2016."

Other key highlights of eVestment's report: 

  • Q2 outflows were not historic, but three straight quarters of redemptions hasn’t happened since the second quarter of 2009 - the last of four straight quarters of redemptions. Aside from the first half of this year, the only other net negative first half on record was also in 2009. 
  • Long/short equity strategies had the largest aggregate redemptions in June. Performance declines in H1 are likely the primary reason for the elevated outflows. The 10 long/short equity funds with the largest outflows in June returned an average of -6.13% in Q1, and -8.27% YTD, according to eVestment data, while the 10 funds with the largest inflows in June have returned an average of +4.55% so far in 2016.
  • Multi-strategy hedge funds, which tend to have redemption notice requirements of 45 days or more, had their second-largest monthly outflow December 2012.
  • Aggregate macro hedge fund flows shifted back to negative again in June after a two-month reprieve.
  • Event driven funds continue to lose assets. Net outflows of $2.97 billion in June brought the Q2 tally to $6.73 billion and the YTD decline to $27.06 billion. 
  • Unsurprisingly given the Brexit prelude, European funds saw elevated redemption pressure for the second straight month – with the majority coming from UK-based funds, long/short equity and large managed futures funds.
  • Funds domiciled in Asia are in the midst of the worst redemption pressures since mid-2011. Investor flows have been negative for seven consecutive months, and nine of the last ten months, for an estimated total of $6.1 billion.
  • CTAs and managed futures funds faced mixed flows in June despite being major winners during the post-Brexit market volatility, with a slight net inflow of $410 million. 
  • Investor interest in the strategy is at a crossroads, eVestment said, as the group had the largest inflows in H1 2016, three months of losses pre-Brexit, and clear outperformance following the vote. Investors have to weigh performance consistency, against the desire for less correlated strategies. 
  • While aggregate emerging market fund flows were negative in June/Q2/H1, there have been bright spots, including products focused on EM currencies, as well as signs of investor interest in Russia and Latin America-focused products. 
  • Credit hedge fund flows were generally negative in June and Q2, despite a recent string of strong relative returns. While investors have likely been pleased with recent returns, the somewhat indifferent-seeming recent flows reflect an anticipated dearth of widespread opportunities, eVestment said.
  • Unfortunately for macro investors, and ultimately for the macro universe, of larger funds (>$500 million) reporting through June, the ten best performers of 2016 have seen investors remove over $7 billion during the year, and the 10 worst performers have received allocations of nearly $4.5 billion.

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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