eVestment: Investors Redeem $25.2B From Hedge Funds in July

Aug 24 2016 | 10:27pm ET

Investors continued to redeem assets from global hedge funds in July, removing an estimated $25.2 billion and bringing year-to-date net asset flows to a negative $55.9 billion, according to the latest edition of eVestment’s Hedge Fund Asset Flows Report.

Investor withdrawals totaled $23.5 billion in June, eVestment reported in late July. 

Cumulatively, the redemption pressures facing the industry during the past two months are reminiscent of the second half of 2011, the company said, when over a four-month period redemptions were an estimated $42 billion. 

Unless the pressure recedes during the last five months of the year, 2016 will be the third year on record with net annual outflows, and the first since the financial crisis years of 2008 and 2009.

Investor redemptions from the industry continue to be driven by mediocre performance, eVestment’s research revealed. Funds producing losses in 2015 are by far the primary source of outflows throughout the year into July, while in both June and July, redemptions have accelerated from within funds producing losses in 2016.

Meanwhile, while aggregate industry flows were negative, many individual funds with strong performance saw positive flows. For instance, the ten largest allocations in the last two months have gone to funds that have produced an average return of nearly 7% this year, and produced positive returns on average in 2015.

“There should be caution when classifying the industry as a whole, as it is more a sum of very unique parts – some of which have done very well in 2016,” wrote Peter Laurelli, global head of research for eVestment, in the report. “That we are forced to illuminate positive sentiment in the proverbial ashes only illustrates the difficulty faced by many [funds].” 

“Outflows were highest among credit, multi-strategy, and event driven funds,” he added. “Commodity funds continue to attract new assets, and there are signs of shaky sentiment within managed futures strategies, a consequence of volatile returns and losses earlier in 2016.”

Commodity funds are one segment that has consistently attracted new allocations in 2016, including both in June and July. Investor sentiment to commodity funds has been positive for the last 14 months, during which time investors have added an estimated $10.3 billion.

Other key highlights from the eVestment report:

  • The magnitude of redemptions from Asia-domiciled funds declined for the fourth consecutive month in July. Investors redeemed an estimated $840 million from the Asia-domiciled hedge fund industry.
  • Money continued to come out of funds investing in China in July. The $209.1 million removed from reporting funds was above the level seen in June, but still far less than its highest level in March 2016.
  • Multistrategy funds faced their largest monthly outflow since April 2009 and redemptions from credit strategies rose to their highest level since September 2011. 
  • Managed futures funds have an aggregate bright spot for flows in 2016. This segment has been supported by some commodity-focused funds operating in futures markets. With those products excluded, we’ve begun to see redemption pressures emerge within a few of the large, archetypal managed futures funds. This is most likely due to elevated losses in the span of March to May. 
  • July was a huge month of redemptions from credit strategies, the universe’s largest non year-end redemptions since September 2011. Again, performance appears to be at the heart of the redemption pressures. 
  • Event driven and macro funds saw the largest redemptions on a strategy level. Many credit strategies fall into the event driven category, although redemptions in both June and July have come from activist strategies and special situation credit funds alike.
  • Looking across the EM universe over the last two months shows a diverse set of characteristics of the winners. Many are long/short equity strategies, which would make these EM-focused funds stand apart from their developed market peers. Others are fixed income focused, whose EM exposure produced solid 2015 and 2016 returns, again a distinction from the broad credit-focused universe. Lastly, investors have been allocating to country specific strategies, targeting specifically Brazil and Russia.

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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