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A $151.82 billion trading profit in January brought total hedge fund industry assets back over the $5 trillion USD threshold to settle at $5.05 trillion.

"After a string of monthly redemptions reaching back to April, investors turned the page in January and began returning to hedge funds," said Ben Crawford, Head of Research at Backstop-BarclayHedge. "It was a welcome respite from the prevailing twelve months, in which the hedge fund industry endured a combined -$329.91 billion in net redemptions and -$198.25 billion in trading losses. While many individual hedge funds and several sectors bled grievously in 2022, it wasn't all necessarily deleterious to the industry, as a significant portion of the redemption activity turned out to be rotational in nature. Remarkably, our modeling indicates that the industry's total AUM never fell more than -8.25% off its high-water mark in 2022."

While hedge fund subsectors reporting net outflows in January outnumbered those picking up new assets, there were some standout corners of the market that saw fresh swells of investor enthusiasm. In dollar terms the clear winner was Multi-Strategy funds which enjoyed net subscriptions worth +$10.79 billion (1.60% of sector assets), while proportionally-speaking Emerging Markets - Global funds accepted the most investor dollars at +$5.18 billion (2.33% of sector assets). For the first time in quite a while, Fixed Income funds saw net inflows, reinvigorating those managers' coffers with +$4.41 billion in new capital (0.49% of sector assets).

In other corners of the industry, investors continued trimming exposures to hedge funds in much the same way as they did throughout 2022. The subsectors that suffered the most significant pullback in January included Balanced (Stocks & Bonds) funds, down -$6.79 billion (-0.89% of sector assets); Event Driven funds were off -$3.69 billion (-1.48% of sector assets); Equity Long/Short funds shed -$2.06 billion (-1.31% of sector assets); Merger Arbitrage funds dipped -$1.78 billion (-1.37% of sector assets); Equity Long Bias funds shrank by -$1.24 billion (-0.40% of sector assets); and Macro funds receded -$1.00 billion (-0.54% of sector assets).

Despite modest aggregate trading losses in January's roiling markets, the managed futures industry also turned things around in January, reversing a seven-month redemption streak with +$0.90 billion in net inflows, equivalent to an increase of +0.25% of industry assets. CTA subsectors were split between inflows and outflows in January. Adding to assets during the month were CTA - Systematic funds with $0.87 billion (0.27% of sector assets) and CTA - Hybrid funds gained $140 million (0.68% of sector assets). Managed futures subsectors reporting net redemptions in January included CTA - Discretionary funds down -$110 million (-0.36% of sector assets) and CTA - Multi Advisor Futures Funds off -$50 million or (-0.25% of sector assets).

12-Month Flow Trends

Over the 12-month period, the hedge fund industry experienced $329.91 billion in net redemptions through January. A $198.25 billion trading loss over the period brought industry assets to the $5.05 trillion figure as January ended, up from $4.84 trillion at the end of December and up from $5.04 trillion a year earlier.

Merger Arbitrage funds remained atop a small group of hedge fund subsectors posting 12-month inflows as January ended, attracting $4.63 billion (4.86% of sector assets). Convertible Arbitrage funds remained ahead by $3.05 billion (8.61% of sector assets) while Emerging Markets Latin America funds saw $220 million in net inflows (+2.00% of sector assets).

Subsectors with the largest 12-month outflows included Fixed Income hedge funds which, despite a surge in new subscriptions to begin 2023, remained deep in the hole over the trailing 12-month period, down -$123.43 billion (-12.25% of sector assets). Equity Long Bias-, Equity Long/Short- and Balanced (Stocks & Bonds) funds continued to be dragged along under the prevailing trend in January. Consequently, Balanced (Stocks & Bonds) funds have been stripped of -$43.55 billion (-5.87% of sector assets); Equity Long Bias funds are -$36.16 billion lighter (-9.67% of sector assets); and Equity Long/Short funds are out -$24.27 billion (-14.18% of sector assets).

Beyond adding a bit of drama, January's pattern reversal did little to dent the warp and woof of the trend woven by the industry's investors over the prevailing twelve months. Three of four CTA subsectors posted net inflows through January: Discretionary CTAs added $6.11 billion (+34.22% of assets); Multi Advisor Futures soaked up +$2.43 billion (+18.28% of assets); and Hybrid CTAs collected around $100 million worth of net inflows (+0.56% of assets). The lone managed futures subsector demonstrating net redemptions was Systematic CTAs. That sector was down a combined -$17.47 billion or -5.48% of its total assets over the trailing twelve-month period.