Monday, May 27, 2024

Multi-strategy draws capital as investors pull $111bn from hedge funds

The hedge fund industry saw net outflows of $111bn in 2022, with only managed futures and multi-strategy firms drawing new money, according to eVestment.

The headline outflow figure is large, though in percentage terms only the worst year for flows since 2019. In absolute terms, the reduction was the third largest since the financial crisis of 2008.

Multi-strategy hedge funds attracted a net $5.8bn last year, which includes the net outflow of $7.3bn in December as profits were returned to investors by some of the top performers.

“Investors in some large multi-strategy products planned to remove assets amid some significant outperformance,” the data provider said. “The largest redemptions in December came from some of the largest managers who also produced exceptional returns this year.”

A similar pattern occurred after multi-strategy’s strong returns in 2021.

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Managed futures had the biggest net inflow of $6.2bn last year, yet saw December outflows, eVestment said. The redemptions were largely profit returns, with each of the ten largest redemptions in last month from products which performed very well in 2022.

“In terms of capital raising in an otherwise difficult environment, and producing returns in an exceptionally difficult environment, 2022 will go down as one of the best years for managed futures funds in recent memory.”

It was a more mixed picture for the third “M” of strong hedge fund performance in 2022: macro. The strategy had a record net outflow of $30.6bn despite big gains and expected opportunities going forward as macro volatility continues.

“What the headline number doesn’t show is a solid group of mid-sized to large funds who not only performed well in 2022 but were also able to raise new capital this year,” said eVestment.

Macro aside, directional credit (-$26.6bn) and long/short equity (-$37.6bn) saw the biggest net outflows last year.

“Credit- focused hedge funds will continue face headwinds into 2023 as demand for private credit fund structures is expected to continue,” observed eVestment.

“Asset-weighted returns indicate [long/short equity] did not meaningfully outperform global equity markets in 2022, which could make 2023 another difficult year for raising new assets.”

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