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Investors shift out of hedge fund allocations

Tuesday, May 31, 2022
Opalesque Industry Update - Hedge fund redemptions accelerated in March totaling -$35.37 billion (-0.70% of industry assets), according to the Barclay Fund Flow Indicator published by BarclayHedge, a division of Backstop Solutions.

An $18.24 billion trading gain for the month combined with new entrants to push total hedge fund industry assets to $5.14 trillion as March ended.

"While the performance of equity markets were not as bad in March as in February, they are still struggling under the weight of their worst start in more than five years. Meanwhile fixed income markets have been in a steady, if less harrowing, decline throughout the quarter," observed Ben Crawford, Head of Research at BarclayHedge. "Against this backdrop we've seen capital flow out of hedge funds three of the last four months-a pattern that hasn't recurred since the COVID pandemic shocked global markets in early 2020. Since then, hedge fund investors have had the pedal firmly against the metal, impelling a 20-month interval of record asset growth that saw industry coffers swell by more than $1.5 trillion. The return of an outflow trend now may signal that investors are ready to ease off the gas."

A majority of hedge fund subsectors tracked posted net redemptions in March. Subsectors bucking the redemption trend to post monthly inflows were led by Multi-Strategy funds, adding $3.89 billion. Others subsectors attracting new assets during the month included Sector Specific funds with $2.31 billion in inflows; Merger Arbitrage funds adding $2.08 billion; and Option Strategies funds bringing in $331.8 million.

Subsectors contributing to the hedge fund industry's monthly redemption total included Fixed Income funds with -$14.35 billion in outflows; Equity Long/Short funds shedding -$14.04 billion; Emerging Markets - Global funds with -$3.90 billion in redemptions; Balanced (Stocks & Bonds) funds seeing -$3.28 billion exit; and Equity Long-Only funds with -$2.33 billion in outflows.

The managed futures industry posted a second consecutive month of inflows bringing in $2.09 billion in March. All four CTA subsectors reported net inflows in March. Systematic CTAs led the way adding $1.51 billion (+0.47% of assets), while Discretionary CTAs brought in $517.51 million (+2.91% of assets), Multi Advisor Futures Funds saw $289.87 million in inflows (+2.10% of assets), and Hybrid CTAs added $67.87 million (+0.34% of assets).

12-Month Flow Trends

For the 12 months through March, the global hedge fund industry experienced $132.88 billion in net inflows. A sustained run of inflows, retained earnings and new industry entrants pushed the industry's total AUM past the $5.14 trillion figure as March ended, up from $5.04 trillion in February and up from $4.18 trillion a year earlier.

Multi-Strategy funds continued to lead the group of hedge fund subsectors posting 12-month net inflows as March ended adding $51.09 billion (+13.02% of assets). Elsewhere Sector Specific funds were up $27.71 billion (+8.46% of assets); Fixed Income funds added $22.26 billion (+2.49% of assets); Balanced (Stocks & Bonds) funds brought in $19.67 billion (+3.51% of assets); Merger Arbitrage funds saw $12.98 billion (+15.55% of assets); and Equity Long-Only funds added $11.16 billion (+4.87% of assets).

Hedge fund subsectors seeing 12-month net redemptions included Emerging Markets - Global funds with -$10.21 billion in outflows (-5.63% of assets); Equity Long/Short funds shedding -$7.77 billion (- 4.70% of assets); Macro funds with -$7.40 billion in redemptions (-3.84% of assets); Equity Long Bias funds with -$4.77 billion exiting (-1.32% of assets); and Emerging Markets - Latin America funds with -$1.50 billion in redemptions (-13.40% of assets).

Over the 12-month period through March the managed futures industry experienced $2.58 billion in inflows. A $38.52 billion trading profit contributed to the industry's $359.97 billion in total assets, up from $319.03 billion a year earlier.

Three of four managed futures subsectors posted inflows over the 12-month period. Discretionary CTAs added $3.29 billion (22.56% of assets), Multi Advisor Futures Funds brought in $1.56 billion, (+13.70% of assets), and Hybrid CTAs saw $1.47 billion in inflows, (+8.48% of assets).

Systematic CTAs remained the lone managed futures subsector experiencing 12-month redemptions with $2.25 billion (+0.77% of assets).

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