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Hedge funds reverse two-month redemption trend in May

Thursday, July 18, 2019
Opalesque Industry Update - Hedge funds reversed a brief two-month redemption trend in May with $800 million in industry inflows, a turnaround from April's $9.4 billion in redemptions.

While the fund flow needle turned upward in May, the month's inflows represented a negligible portion of industry assets, according to the Barclay Fund Flow Indicator published by BarclayHedge, a division of Backstop Solutions.

Strong U.S. economic indicators, an equity market rally that saw the S&P 500 making up ground lost in late 2018 and four consecutive profitable months for hedge funds was enough to overcome the redemption impact of Brexit worries and worries over an economic slowdown elsewhere in the world.

Data from the nearly 6,000 funds (excluding CTAs) included in the BarclayHedge database showed flow activity evenly mixed among regions of the world in May. The $10.6 billion in inflows to hedge funds in the U.S and its offshore islands, 0.7% of assets, went a long way toward offsetting the impact of $7.5 billion in redemptions in Continental Europe, 1.1% of assets, and $5.8 billion in May outflows, 1.0% of assets, in the U.K. and its offshore islands.

"An equity market rally coupled with strong U.S. economic news - highlighted by first quarter economic growth exceeding expectations - drove U.S. hedge fund investment and tipped the global balance toward hedge fund inflows in May," said Sol Waksman, president of BarclayHedge. "That said, ongoing Brexit concerns and downward revisions of economic growth projections in Europe and China drove redemptions in other regions of the world."

For the 12 months ending May 31, the hedge fund industry saw $151.0 billion in redemptions, 5.0% of industry assets.

While redemptions remained the norm for most hedge fund sectors over the 12-month period ending May 31, three sectors did post net inflows for the period. Macro funds experienced $15.6 billion in inflows, 7.6% of assets, over the 12 months, while Event Driven funds took in $9.9 billion, 6.9% of assets, and Merger Arbitrage funds added nearly $902 million, 1.4% of assets.

Investor concerns with regard to continued Fed tightening and doubts about whether the 10-year long bull market in equities was coming to an end continued to be reflected in the redemption trends of several sectors. Equity Long/Short funds experienced $31.1 billion in outflows, 13.9% of assets, Fixed Income funds saw $28.1 billion in redemptions, 4.9% of assets, Balanced (Stocks & Bonds) funds saw $27.8 billion in outflows, 11.3% of assets, and Equity Long Bias funds saw 12-month redemptions totaling $25.8 billion, 8.0% of assets.

For managed futures funds the redemption trend extended to 11 months in May. The month's redemptions stood at $3.8 billion, 1.2% of assets, up from $400 million in April outflows. For the 12-month period ending May 31, managed futures funds experienced $17.7 billion in redemptions, 4.8% of assets.

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