Hedge Fund Returns Down -1.1% In May 2022

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The monthly Hedge Fund Report for May 2022 from the Citco group of companies (Citco), the asset servicer with $1.8 trillion in assets under administration (AuA).

Executive Summary


Hedge fund returns improved month-on-month in May, but remained in negative territory amid persistent market volatility.

The overall weighted average return for hedge funds administered by the Citco group of companies (Citco) was -1.1%, an improvement from the -2.9% seen in April, with performance once again mixed across both strategy type and size.

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Commodity funds continued to broadly benefit from significantly higher prices, with funds delivering a 1.1% return on average for May, but it was Global Macro that achieved the best returns after delivering 1.2%.

All other strategies experienced negative returns, although declines were smaller than the previous month. Event Driven suffered the biggest negative performance at -2.1%.

On an AUA basis, the largest funds with over $3B continued to see the largest declines, with a return of -2%, although funds with $1-3B of assets bucked the trend after delivering a positive return of 0.3% in May.

Once more, the gap between the weighted average return of -1.1% and the median return of -0.4% confirmed this trend of underperformance from larger funds.

Nonetheless, performance overall picked up versus the previous month, with 42.4% of funds delivering positive returns in May, compared to 38.9% of funds in April.

Capital Flows

Net inflows to hedge funds administered by Citco more than trebled month-on-month in May, with overall subscriptions of $9.3B far outstripping the $6.6B of redemptions.

In total, net inflows were $2.7B, substantially ahead of the $800M seen the previous month. The largest funds (with more than $10B of assets) took the lion’s share of inflows after attracting $2.1B in net capital, and only funds with assets between $5B-$10B saw small outflows.

Multi-Strategy was the standout winner in terms of inflows, with net subscriptions of $1.5B, while Fund of Funds and P.E./R.E. strategies also contributed with net inflows of $600M and $400M respectively. Meanwhile, only Emerging Markets and Event Driven saw outflows, and these were muted at just $100M each.

On a regional basis, the Americas and Europe attracted the majority of subscriptions, with $1.3B and $1B of net inflows respectively.

The outlook for June is currently showing a reversal of this trend, with overall redemptions of $15.1B currently expected, and a further $8.6B of future outflows projected for the remainder of 2022. However, it remains to be seen how much these outflows will be offset by new subscriptions for the June quarter-end cycle and additional future trade dates.

Private Funds Report On The Future Of Fund Services

Jay Peller, Head of Fund Services recently featured in a Private Funds report on the future of fund services, sharing his thoughts on futureproofing the industry.

“Our clients appreciate our forward-looking approach, and I would suggest any manager makes sure that their service provider has a roadmap for the future,” Peller said.

“Providers needs a path to increase automation and machine learning, and to tap the vast powers of today’s technology. It is the only way to be ready for the challenges that are bound to show up sooner than anyone expects.”

Our Services

A total of 72% of our staff are currently approved to work from our offices, with 32 of our 41 locations fully open. Although the situation remains fluid in many regions and we are closely monitoring those, we expect the remaining nine offices to have fully opened by the end of July, which includes our offices in the Philippines, India and Canada. In line with Citco’s stringent Home to Office (H20) policy, we will continue to follow guidelines around the world and adjust our office staffing policies accordingly.

In May, 92.8% of SLAs were delivered on time, totaling some 3,099 specific service goals. As per previous months, 100% of client deliverables were also achieved.


Hedge Fund Returns

Overview of Investor Flows

Hedge Fund Returns

Hedge Fund Returns

Insights into Trade Volumes

Hedge Fund Returns

Average trade volumes in May were the second highest for the year, up 6.2% month-on-month and higher than the same period last year by 14.3%.

As ever, we continue to see a strong correlation between volatility in the markets and volumes being traded. Average volatility in May was the highest we have seen this year, with the VIX Index at 29.25.

Volatility even surpassed March when much of the turmoil in Europe began - that month, despite the outbreak of the conflict, the VIX index averaged 26.9, while in April it had dipped back to 24.2.

This most recent jump suggests the increase in volumes in May was likely a mix of trades driven by volatility, as well as new buying opportunities. In terms of product mix, other than options on rates and indices, every other asset class traded up in May relative to April.

Meanwhile, Citco’s trade ingestion STP rate for April was 98.16%, consistent with recent months.

Insights into Payments, Treasury and Collateral

Hedge Fund Returns

Increasing market volatility and trading volumes kept treasury volumes elevated in May as we enter the summer season proper.

On the back of increased trading comes more OTC settlements as well as a spike in margin moves (both in terms of Variation Margin and Initial Margin), add to this the market uncertainty and we see an increase in cash management being deployed to decrease unencumbered cash balances across primes and custodians.

The big unknown now is whether things simmer for the summer or whether things continue to heat up.

Service Level Summary

Hedge Fund Returns