Warning signs for hedge funds as investor allocations slow down

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Warning signs for hedge funds as investor allocations slow down

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The recent steady flow of new investor capital into hedge funds this year could be showing signs of slowing down, with less than half of managers (44 per cent) seeing positive inflows in September, according to new eVestment research.

Overall, investors yanked USD7.99 billion out of the global hedge fund industry during September, according to eVestment’s latest ‘Hedge Fund Asset Flows Report’. Coupled with a performance slide of 0.57 per cent for the month, hedge funds’ overall assets dipped from USD3.62 trillion in August to USD3.59 trillion in September, eVestment’s metrics show. 

“That quarter-end data would show outflows is not surprising as that has been the norm across the industry over the last 18 quarters,” Peter Laurelli, eVestment’s global head of research. “That aside, September net redemptions do not appear to be a sign that an otherwise positive year for the hedge fund business is about to shift in sentiment.”

Hedge funds have drawn more than USD30 billion in new capital from allocators over the course of 2021. But Laurelli indicated that last month’s outflows offer warning signs for some in the hedge fund business. 
“The data shows only 44 per cent of funds saw inflows in September,” he said. “This is a signal the momentum of inflows is slowing.”

“On one hand we could dismiss September’s outflows for this reason in the face of what has been an otherwise generally good year for capital raising across the industry, but if we dig, we can find some underlying metrics which point to a slowing of this year’s inflow momentum that extends beyond just September’s data.”

The strategies most in-demand among allocators in September were managed futures, which pulled in USD1.9 billion, long/short equity – drawing USD1.78 billion – and event-driven strategies, which attracted USD1.37 billion of investor capital.

In contrast, macro hedge funds registered some USD4.10 billion worth of withdrawals, putting the strategy’s year-to-date redemptions at USD3.30 billion. Investors also fled directional credit (-USD3.21 billion) and multi-strategy hedge funds (USD2.23 billion) during September.

“The managed futures segment has now seen aggregate net inflows for seven consecutive months, matching its previous largest streak of net inflows from 2015,” eVestment said. 

“Echoing the theme of concentrated allocations in September, fewer than half of reporting managers’ data indicated net inflows during the month and looking across the various reporting funds we see the bulk of all net new assets coming in this year have gone to larger managers in the space. 

“The ten largest net inflows so far in 2021, which account for almost 70 per cent of reported data’s net inflows, have gone to products with an average AUM near USD4 billion.”

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Hugh Leask
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