Hedge Fund Redemptions Continue Into November

Redemptions in November were the industry’s third consecutive month of outflows, and mostly likely this will continue into December. That will make Q4 flows negative, making it the third consecutive quarter of redemptions. If you go back to Q4 2015, this will mean nine of the last thirteen quarters will have seen net outflows. As it stands now, just over $125 billion has been removed from the industry in that time frame, through November. It is safe to say that, in aggregate, investor sentiment toward the industry is negative.

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Within each category, however, there are funds gaining new assets, and there are many firms that would likely consider 2018 a positive year. Within the ten products receiving the most new assets in 2018, the average return is nearly 4% (compared to industry average losses of -2.83%), meaning not only have these funds been successful at raising capital, but they have mostly been making their investors happy as well.

Highlights From This Report

  • Investors removed an estimated $6.68 billion from hedge funds in November. YTD outflows nearly $15 billion.
  • Macro managers saw elevated redemptions continue into November, and managed futures redemptions continued for a ninth month.
  • Directional equity flows were positive, led by outperforming quant strategies.
  • EM fund flows were negative for the sixth month as pockets of positivity seen in the past mostly disappeared.

Hedge Fund Redemptions Continue Into November

Investors removed an estimated $6.43 billion from hedge funds in November, pushing YTD flows further into
negative territory with an estimated $14.52 billion leaving the industry in 2018. Industry asset levels fell again,
as performance also detracted from overall asset levels. Total hedge fund AUM sits at an estimated $3.22 trillion.

Hedge Fund Redemptions

Key Points

  • Investor sentiment toward the broad hedge fund industry is firmly negative.
    Redemptions in November were the industry’s third consecutive month of outflows. Given that all except for one of the past ten Decembers have seen end-of-year net outflows, it will be four in a row. That in turn will make Q4 flows negative, making it the third consecutive quarter of redemptions, and if you go back to Q4 2015, it will mean nine of the last thirteen quarters will have seen net outflows. As it stands now, just over $125 billion has been removed from the industry in that time frame, through November. It is safe to say that, in aggregate, investor sentiment toward the industry is negative.
  • Persistent aggregate redemptions does not mean sentiment is universally negative.
    Through November, about 59% of reporting managers are experiencing outflows. Agreed, that is not good, but within each category there are funds gaining new assets, and there are many firms that would likely consider 2018 a positive year. Within the ten products receiving the most new assets in 2018, the average return is nearly 4%, meaning not only have these funds been successful at raising capital, but they have mostly been making their investors happy as well.
  • Macro redemptions remain elevated for a second consecutive month.
    We noted in our September report that the remainder of 2018 would be interesting for macro fund flows, given the large asset-weighted performance declines the group produced in August. This manifested itself with elevated redemptions in October, which have continued into November. Nearly 70% of reporting macro funds had redemptions in November (behind only EM funds for breadth of outflows), and now 60% of products have outflows for the year.
  • Negative sentiment to managed futures continues into a ninth consecutive month.
    As difficult as the last couple months have been for most macro funds, redemption pressures in the managed futures space has been far worse. Unlike within the macro space where performance has not been as consistently underwhelming in recent months, managed futures funds have set the table for a very difficult end of year.
  • Long/short fund flows took a sharp turn upward in November.
    After three consecutive months of redemptions, and seven months of outflows in the last eight (driven by sharp asset-weighted losses in February), investors allocated to long/short equity in November at an elevated rate. The largest allocations went to prominent quantitative directional equity strategies.
  • Directional credit flows have begun to waver.
    After almost a year of mostly positive investor sentiment, directional credit flows have faltered in the last three months. With two consecutive months of performance losses through November, the end of year will likely not be positive for this segment.

Emerging Market Fund Flows Were Negative for a Sixth Consecutive Month

Hedge Fund Redemptions

Key Points

  • It is difficult to find a positive theme for funds within the EM landscape.
    In prior months when EM faced aggregate redemptions, there tended to be a handful of products which appeared to be able to attract a noticeable amount of new assets. That was not the case in November. 85% of reporting managers had net outflows in November, and of those that did attract new assets, the levels were very low. Performance across the universe has been broadly negative, and investors do not appear to believe this is a moment of opportunity. There is only one product of all reporting managers in our flows sample which has been able to produce positive returns in 2018, and their flows for the year are essentially flat.
  • Flows for Europe-domiciled funds turned back to positive in November.
    European managers have seen elevated redemptions in 2018, but November was a bit of a respite. A handful of macro managers had meaningful inflows, an interesting deviation from the strategy’s elevated aggregate redemptions on a global basis in November. Redemptions were still very present, however, and mostly from products which have been facing negative investor sentiment for much of the year.

Article by eVestment




About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and three kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own 2.5 grams of Gold