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Familiar Flow Trends Continued for Hedge Funds in April

3 June 2022
Investors removed an estimated net $5.20 billion from hedge funds in April. Performance accounted for an increase in assets. The result of both factors was a slight increase in estimated industry AUM to $3.624 trillion.
By Peter Laurelli, CFA | eVestment Global Head of Research

From a strategy perspective, capital raising themes have mostly stayed the same for several months. Multi-strategy managers along with managed futures have continued to raise new assets while credit and long/short equity funds have generally had a difficult time. While those basic themes continue, there are more subtle changes happening which point to a weakening of the success the industry has had, overall, since the onset of the COVID-19 pandemic.

Aggregate success in 2022 will depend on whether investors will ease the redemption pressure from both credit and long/short equity strategies and whether macro funds can see a broadening of their meager successes in recent quarters.

Industry Flows

Net flows appear low, but volume is creeping higher.

On the surface, monthly net flow numbers have been relatively tame. There were nine months in 2021 where net flows were similar to or higher than the largest net flow so far in 2022.Meanwhile, the relative volume of net flows has been jogging higher since reaching a long-term low point in November 2021. What this means is while net flow may not be large, there is more money moving around the industry this year (around or in/out is indistinguishable) than for most of 2021. Rather than continue to reiterate the same strategy level points in detail as they’ve changed little, we have inserted a new chart showing the volume of net flow over time.

With higher volumes of net flow has come a less desirable theme for many, concentration.

After the onset of the COVID-19 pandemic and net inflows began to return to the industry, one healthy stat that emerged was that the biggest bulk of net inflows were going to a broader set of products. This theme lasted through the middle of 2021, then wavered as there were periods of solid breadth along with higher concentrations. In the last two months, however, the levels of concentration of net inflows to the highest amassing group has been higher than the entire post-pandemic onset period. This simply means that over the last two months a small group of hedge funds have been receiving a larger proportion of new allocations. That is, in general, not a desirable trait for the broad health of the industry.

Volume of Net Flows

Source: eVestment. Monthly Absolute Net In/Outflow as a % of Prior Period Reported Assets, Jan 2015 – Apr 2022

The flow themes we’ve seen for several months mostly continued into April.

Investor interest in multi-strategy products continued in April as multi-strategy managers had net inflows of nearly $2.5 billion lifting YTD net inflows to $12.7 billion. Managed futures capital raising success also continued into April. These two strategies have been the only real drivers of hedge fund net inflows in 2021/2022. The drivers of net outflows have also been consistent with redemptions from long/short equity and credit strategies weighing down overall net flow in 2022. There have been mixed flows within the macro segment with some managers able to generate net inflows, but overall, the largest players in the group have been experiencing redemption pressure.

Market neutral and event driven strategies continue to see moderate success.

Market neutral equity strategies and event driven funds have been able to, as a group, create net inflows both this year and last, though net flows in April were essentially flat. Performance within the event driven group has been very mixed with some larger products mostly withstanding the current volatile environment while others are not. This will likely further suppress any meaningful or widespread growth in the category.

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