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UK, Europe tips hedge fund redemptions to $11B worldwide in March

Tuesday, May 14, 2019
Opalesque Industry Update - Hedge funds proved unable to turn February's net inflows into a two-month trend, as March saw $11.0 billion in hedge fund redemptions worldwide, a dramatic shift from February's $12.1 billion in inflows.

Hedge funds' March outflows represented 0.4% of hedge fund assets, according to the Barclay Fund Flow Indicator, published by BarclayHedge, a division of Backstop Solutions.

March redemptions were fueled by investor fears of a global recession, but also by local factors that made the bulk of redemptions a regional affair.

Data from the nearly 7,000 funds included in the BarclayHedge database showed hedge funds in most regions of the world actually experiencing net inflows in February. But sizable redemption activity in the U.K. and its offshore islands and Continental Europe - along with a much smaller outflow amount from hedge funds in Asia excluding China and Japan - tipped the balance worldwide to the redemptions side of the ledger.

"Ultimately, gains in U.S. equity markets and positive signs in U.S.-China trade talks weren't enough to offset investors' ongoing concerns over the absence of a clear solution to the U.K.'s Brexit dilemma and an economic slowdown in the Eurozone," said Sol Waksman, president of BarclayHedge. "News that Italy tipped into recession at the end of 2018 only added to investors' worries."

For the 12 months ending March 31 the hedge fund industry reported net redemptions of $140.3 billion, 4.7% of industry assets. Total hedge fund industry assets stood at $3.01 trillion as March closed.

Macro funds set the inflow pace over the 12 months ending in March, taking in $13.1 billion over the period and adding 6.3% to assets. Event Driven funds saw $5.4 billion in inflows, 3.8% of assets, over the 12 months, while Merger Arbitrage funds reported $468.4 million in inflows, 0.7% of assets over the period, and Emerging Markets - Asia funds added $79.3 million, 0.1% to assets over the 12 months.

Bond and stock market volatility fueled net redemptions in several other sectors over the 12-month period. "While a yield curve inversion late in March can't be blamed for March redemptions, the flattening yield curve and bond and market volatility that preceded it can," said Waksman. "And many funds are still trying to make up ground lost to 2018's equity market volatility."

Fixed Income funds gave up nearly $29.0 billion over the 12-month period, 5.2% of assets, while Balanced (Stocks & Bonds) funds, saw nearly $27.1 billion in redemptions over the 12 months, 10.8% of assets.

Meanwhile, tighter U.S. monetary conditions and the U.S. China-trade war challenged emerging markets over the past year, challenges that translated to several emerging markets hedge fund sectors, including Emerging Markets - Global funds which experienced nearly $12.8 billion in redemptions, 9.0% of assets, over the 12-month period ending March 31.

Redemptions from hedge funds in the U.K. and its offshore islands totaled $9.4 billion in March, 1.7% of assets, while hedge funds in Continental Europe shed 0.7% in assets in March through more than $5.0 billion in outflows, more than offsetting inflows in other regions of the world. Hedge funds in Asia excluding China and Japan also experienced $297.6 million in March redemptions, 0.7% of assets.

The U.S. Fed's indications of a pause in interest rate hikes and continued optimism over U.S.-China trade talks helped hedge funds in the U.S. and its offshore islands take in more than $1.1 billion, 0.1% of assets, in March, while China and Hong Kong experienced nearly $890.7 million in inflows, 1.5% of assets.

For managed futures funds, the redemption trend continued for an eleventh straight month in March with $1.9 billion in CTA outflows, 0.5% of assets. Over the 12 months ending March 31, CTA funds experienced $14.3 billion in net redemptions, 3.9% of industry assets. Total CTA assets stood at $322.9 billion at the end of March.

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