Hedge fund flows remain high amidst market volatility
25 June 2020
Investor flows were near flat in May, with net inflows of an estimated $1.71 billion into hedge funds. Total estimated industry assets rose again due to performance gains as AUM sits near $3.05 trillion.

The net flow of assets across the hedge fund industry in May does not highlight what remains a volatile period for industry flows. In March and April, the volume of asset movement was high mainly because there were some significant redemptions.

In the full year periods of 2018 and 2019, the volumes of asset movement were lower, but the problem then was outflows were not being offset by meaningful new allocations. That the data in May shows flows were near flat and the volume of asset movement was high is a sign that new allocations are being made while redemptions persist.

Investor flows were near flat in May, with net inflows of an estimated $1.71 billion into hedge funds. Total estimated industry assets rose again due to performance gains as AUM sits near $3.05 trillion.

Industry Flows:

Key Points from May’s Data:

Net flows may have been muted in May, but the volume of asset movement remains elevated.

The volume of asset movement is the sum of the absolute value of fund-level net inflows and net outflows, divided by prior period reported assets and is useful to compare how much money is in motion month to month. The average monthly volume for 2019 was about 2.6% of reported assets.

In March 2020, the value rose to 4.9%, meaning a very large amount of money was moving in and out. That was the highest reading since at least 2015, the earliest point of tracking this statistic.

In April and May, the value was 3.4% and 3.3%, meaning compared to the last couple of years (2018’s average was also around 2.6%), there remains a lot of money moving about the industry even as net flows were nearly flat during the month of May.

Monthly Absolute In/Outflow

As a percentage of prior period reported assets, Jan 2015 – May 2020. Prior May data highlighted. 12-month rolling values in red.

Elevated redemptions hit long/short equity funds in May.

Last month we noted that while redemptions continued within this space, they were not nearly as high as other segments (Macro), despite some elevated losses within some prominent directional equity funds. Monthly performance declines do not necessarily mean outflows are coming, so it was of interest to see if this segment was going to see a reaction to March’s losses.

It appears we began to see this reaction in May’s flow data with over $5 billion in estimated redemptions from long/short equity. There have absolutely been elevated redemptions for this group within the last 18 months or so, meaning that May’s redemptions are nowhere near unprecedented, and there were many products gaining new money in May, but the outflows are notable.

After three months of large redemptions, macro funds see some inflows.

There has been a bit of a reprieve in the outflows from some macro managers in May, with some large new allocations indicating there is belief in certain products’ ability to right the proverbial ship. While outflows in prior months were highly targeted, inflows in May were a bit more widespread, a generally positive sign for the group after a difficult few months.

Investors interests in credit opportunities continued in May.

We noted in last month there were some meaningful inflows for some event driven and credit strategies in April and this trend has continued into May. The interest in event driven funds during the month was mostly toward equity-focused managers, however, and the interest toward credit was not showing from within the distressed space, but rather among broader relative value and directional credit opportunity managers.

Asia-domiciled managers continue to report data indicating positive interest.

For a third consecutive month there have been net inflows into Asia-domiciled managers. The bulk of assets appears to have gone to managers in Singapore and Hong Kong and to a diverse mix of strategies across equities, credit, macro and event driven.

Regional Flows:

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