Redemptions From Credit Continue, Macro Flows Turn Negative by eVestment
Credit flows negative for the third consecutive month as investors react to recent returns
Total hedge fund assets rose $11.2 billion in November 2015, an increase of 0.36%. Investors flows were very slightly positive during the month with an estimated $3.2 billion added in November. Performance accounted for an additional $8.0 billion increase. The combination of asset gains and net investor inflows lifted total industry assets to $3.094 trillion. For the year, investors have added an estimated $69.5 billion into the industry.
Inflows in hedge funds were positive despite recent losses in certain segments
Overall industry flows were positive approaching year-end despite recent losses in the macro and credit segment having an increasing impact within those universes. Aggregate flows have been supported by interest in large, multi-strategy funds along with systematic equity strategies and certain large, managed futures products.
2015 performance has been good across those receiving the most new money in November. The top ten asset gaining products during the month, fully reporting through November, have produced an average return near 7.5% this year.
Credit strategies had been one of the most successful segments of the hedge fund universe post-financial crisis. Performance had been far above the aggregate for the industry and flows were significant. From May 2009 through May 2015, investors added an estimated $263 billion into hedge funds operating in credit markets. However, performance losses emerged in H2 2014 which appeared to shake investors’ confidence. A string of redemptions began in June 2015 and, except for August, continued through November. In this span, credit strategies have lost an estimated $23.0 billion of assets and flows are on pace to be negative for 2015.
Recent losses within the macro fund universe have begun to noticeably impact aggregated investor flows. The group’s net redemptions in November are estimated to be $2.6 billion, which brings outflows over the last three months to $5.6 billion. Despite the near-term shift in investor sentiment, flows remain positive for the year with an estimated $6.7 billion allocated.
Managed futures flows flat in November
Managed futures flows were essentially flat in November, with a light outflow, estimated near $670 million. There was evidence of redemptions among a small number of larger products in November. Recent volatility within the group may not match all investors’ risk profiles. While large managed futures products have been among the best performing segments of the industry in 2015, the volatility of returns has been elevated, on average, and higher than their smaller peers.
Multi-strategy funds continued to be an avenue of support for overall industry flows in November. Inflows of $4.7 billion during the month bring YTD allocations to $56.9 billion, the universe’s largest annual allocation since 2007.
Equity strategies’ flows have been mixed in the last six months and November’s inflow reverses the prior two-month spurt of redemptions.
Commodity fund flows were slightly positive in November. This marks the third consecutive month of positive aggregate investor sentiment for the group and fifth month in the last six with inflows. Flows have not been large, $520 million in November and $1.2 billion over the six-month span, but it is a sign of a shift to positive interest for the group after a string of redemption pressure dating back to early 2011.
Emerging market hedge funds were slightly positive in November
Emerging market fund flows were slightly positive in November ending a four-month string of redemption pressure. Inflows were slight, currently estimated at $640 million.
For the year, China-focused funds have been the primary winner of new allocations and while there were products that continued to receive new assets in November, redemptions appeared for some funds within the universe. Overall, net flows for China-focused funds was positive in November with the current group of funds reporting having an estimated inflow near $215 million.
There were allocations to products focused on Eastern Europe and Russia in November. This is notable because prior to this month, both from hedge funds and traditional products, investor sentiment toward Russia exposure, and the region, had been negative.
Asia-domiciled products had inflows in November, reversing a two-month period of redemption pressure. Inflows appear a result of the resumed allocation to specific China-focused funds during the month.