Hedge Funds Confront Continued Outflows Despite Improving Performance

In a classic case of situational irony, Hedge Funds notched their fourth consecutive quarter of outflows in Q1 of this year with $22.1B in assets leaving the space, despite a level of performance that more than offset the net outflows, and resulted in industry growth of 3.3%. The industry now stands at AUM of $3.56T. This according to our friends at industry leading data provider Preqin.
To investors fleeing an ever improving industry, we liken this to fleeing a water balloon fight only to fall in and drown in your neighbor’s pool.
In short, the hedge fund industry has been posting the best numbers YTD since 2012. Whether it be Managed Futures, Macro, Quants, Event Driven, Equity or any derivative form of these strategies, you would have been green this year after fees. So we continue to find it baffling as to why raising capital remains such a challenge in the industry, as clearly to there is a great story to tell and sell.
Highlights from the Peqin Report:
  • In the face of net outflows, 37% of credit strategies recorded inflows, accounting for
    $6.6B of the quarter’s inflows.
  •  Both credit & macro strategies had positive capital flow for the quarter
  • Equity strategies suffered the most with outflows of $9.9B. This in spite of +7.18% return for the quarter.
  • Oustide the US funds recorded postive inflows wiht Europe weighing in at +$2.7B and the rest of the world at +$8.1B.
  • Long term performance remains the key indicator of a fund’s ability to attract new capital Over the last 3 years 44% of funds with returns 5% or better experienced postitve inflows as opposed to only 17% of funds with less than 5% returns.
  • The industry as whole had a +3.3% change in AUM since Dec of 2018, with the each strategy showing net increases of:
    • CTA’s 0.1%
    • Credit 4.9%
    • Equity 6.5%
    • Event 2.3%
    • Macro 2.6%
    • Multi Strat 1.7%
    • Niche 0.9%Relative Value 1.7%

 

SOURCE Preqin  https://docs.preqin.com/reports/Preqin-Q1-2019-Hedge-Fund-Asset-Flows.pdf