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Hedge Fund Redemptions Spike in September but Are Lower Quarter over Quarter

Managed Futures Industry Shielded from Wave of Redemptions by Strong Earnings and New Starts


Hedge fund redemptions grew in September to -$48.59 billion (-0.98% of industry assets), according to the Barclay Fund Flow Indicator published by BarclayHedge, a division of Backstop Solutions.

A -$185.16 billion trading loss during the month brought total hedge fund industry assets to $4.71 trillion as September ended.

“September net redemptions from hedge funds more than doubled month-over-month and exceeded the figure posted during the previous quarter-ending month of June. When the dust settled, the industry found itself about one percent lighter in assets,” observed Ben Crawford, Head of Research at BarclayHedge. “There were ample reasons for investors to sour on risky assets: Rising interest rates; unchecked inflation; and increasingly-dour economic forecasts name just a few. Investors trimming risk exposures and performing portfolio rebalancing at quarter-end likely had a multiplying effect on redemption activity from hedge funds. However, despite this somewhat-bombastic end to the third quarter, aggregate net outflows were lower overall than they were in the second—a potentially bracing sign for the industry.”

Except for a handful of subsectors, net redemptions were the norm across the hedge fund industry in September. Only three subsectors managed to buck the trend: Option Strategies funds, attracting approximately $420 million (+0.79% of assets); Emerging Markets – Asia funds added approximately $350 million (+0.22% of assets); and Merger Arbitrage funds which brought in approximately $170 million (+0.15% of assets).

Among the sizable majority seeing September outflows, nominal losses were largest from Fixed Income funds which saw -$16.04 billion exit (-1.75% of assets). Other subsectors seeing significant dollar contractions included: Multi-Strategy funds which hemorrhaged -$9.01 billion (-1.28% of assets); Equity Long Bias funds absorbed -$4.15 billion in outflows (-1.30% of assets); and Global Macro funds saw -$3.57 billion exit (-1.78% of assets).

Proportionally speaking, however, Distressed Securities funds were by far the hardest hit in September, reporting net outflows of -$900 million reflecting a contraction of -5.66% in the subsector’s assets. While the impact was around half as painful, Equity Market Neutral funds also took a substantial blow when -$1.23 billion more flowed out than in, marking a reduction of the subsector’s assets of -2.37%.

The managed futures industry recorded a fourth consecutive month of net outflows with -$1.89 billion in redemptions (-0.48% of assets), closing out a third quarter that proved to be the most challenging since Q1 2020, which marked the onset of the global pandemic era. At quarter end, the managed futures industry had lost -$11.28 billion more investor assets than it had attracted.

The Discretionary CTAs and Multiadvisor Futures Fund subsectors both enjoyed healthy asset growth in September of +6.03% and +2.11% respectively, totaling net subscription activity in excess of $2 billion. Nevertheless, Hybrid CTAs bled out more investor dollars than they attracted in September, losing approximately -$130 million (-0.60% of subsector assets) and the much larger Systematic CTA subsector reported net outflows of -$3.41 billion (-0.96% of subsector assets). As a result, September’s overall result was aggregate net outflows for the industry.

12-Month Flow Trends

For the 12-months through September, the hedge fund industry experienced -$178.38 billion in redemptions (-3.93% of industry assets). A -$558.55 billion trading loss over the period dragged total industry assets down to the $4.71 trillion figure at the end of September, down from $4.96 trillion in August but up from $4.66 trillion a year earlier.

Despite the net loss of more than $9 billion worth of investor capital in September, Multi-Strategy funds remained the 12-month inflow leader among a shrinking pool of hedge fund subsectors enjoying net inflows for 2022. On the year, Multi-Strategy funds are still working with more than $23.63 billion in net subscriptions, (+4.99% of assets). Then there are the Merger Arbitrage funds, which have raked in $11.90 billion and increased its assets by +13.27% in 2022. Convertible Arbitrage funds are in third position (nominally) with +$5.38 billion in net inflows, but strongest overall with a proportional +16.60% increase in subsector assets. The other subsectors with a strengthening mandate in 2022 include Option Strategies funds, adding +$2.10 billion (+4.48% of assets) and Sector Specific funds bringing in +$1.48 billion (+0.41% of assets).

A significant majority of hedge fund subsectors are in the red for 2022 with respect to net redemptions.

In dollar terms, no other subsector is as far in the hole as Fixed Income funds, with -$90.89 billion in net redemptions (-9.28% of assets). Fixed Income’s closest nominal competition comes from Balanced (Stocks & Bonds) funds which are suffering under -$23.24 billion in net outflows (-3.45% of assets). Also among this weary mélange are the Emerging Markets – Global funds and Equity Long Bias subsector: Emerging Markets – Global funds have shed -$21.98 billion in unmitigated redemptions for a loss of -10.76% of its assets. Equity Long Bias managers are having to cope with -$19.67 billion less investor capital (-5.39% of assets).

Over the 12 months through September, the managed futures industry saw -$6.46 billion in redemptions (-1.88% of industry assets). A $55.33 billion trading profit over the period contributed to the $404.88 billion in total CTA industry assets, up from $355.85 billion a year earlier. Consistent profitability and new fund creation have buoyed the industry’s total assets against the net redemption trend we’ve observed throughout the fall.

Recording 12-month inflows over the period were Discretionary CTAs which added $6.73 billion in net subscriptions, swelling the subsectors’ assets by +41.22%. Multi Advisor Futures Funds have picked up $3 billion in net subscriptions, juicing that sector’s assets by +23.06%. Hybrid CTAs have also shown a growth in investor interest, though to a less impressive degree: Managers in this subsector have inflows amounting to $590.0 million or (+3.14% of assets). Only Systematic CTAs have suffered more redemptions than subscriptions. This subsector, the largest by more than an order of magnitude, booked net redemptions totaling -$13.86 billion, equivalent to a reduction of assets of -4.41%.

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Malea Lydon

BackBay Communications