Hedge Fund Industry Asset Flow Report: March 2023

Redemptions Continued in March, Though Better Than Prior Years

There are a few different perspectives with which one can view March’s data. It was the industry’s tenth consecutive monthly net outflow, which is not great no matter how you slice it. The net outflow this March, however, was well below the prior seven-year average net outflow for March, which is not great but also not bad.

Perhaps the most important points to come from March’s data, however, are from the multi-strategy and managed futures segments, which have been the primary reasons overall hedge fund flows have not been much, much worse in recent years. Within multi-strategy, data indicates investor interest may be a satiated, while within managed futures, recent returns may test investors’ sentiment.

There are some other bright spots, however, as the largest redemptions pressures from within the macro universe appeared to pause in March, and the high volume of redemptions from credit strategies have slowed.

Investors removed an estimated net $3.32 billion from hedge funds in March. Performance accounted for a decrease in assets. The result of both factors was a $17.7 billion decrease in assets to an estimated $3.409 trillion.

March was the tenth consecutive monthly net outflow for hedge funds, but as March data goes, it was better than normal.

Before making a positive comment about March’s data, we have to put the level of redemptions in a broader context of flow trends for the overall industry. March was the tenth consecutive month of net outflows for hedge funds. In the last seventeen months, there have been only two where data indicated net positive investor interest. The overarching theme is clearly one of an ongoing trickle of assets out of the industry. Context provided, March’s data tends to show net outflows. Reported data has indicated redemptions for the industry for seven of the last eight Marches with an average monthly flow of negative $11 billion, which makes this March’s net outflow seem benign…but context is critical.

Managed futures continued to be a bright spot for the industry, though performance has been wavering.

From an asset flows perspective, March data indicated investors are still interested in allocating to managed futures strategies. The net $2.2 billion of inflow is the strategy’s second largest net inflow since May of last year ($2.8b inflow in Jan 2023) and after additional data reporting shifted February to slightly positive, it’s the strategies’ third consecutive net inflow of 2023. For the most part, performance within the group had been supporting investor interest in the exposure, however in recent months returns have been wavering. In November 2022, funds produced their largest asset-weighted losses in several years, but March’s performance data, so far, is lower. How investors will react in coming quarters will be interesting to see not only for the strategy’s general success, but also because managed futures has been one of the only two pillars preventing overall hedge fund flows from being much worse.

Multi-strategy funds are not showing the signs of interest seen in the last few years.

The other pillar of support for the industry has been multi-strategy fund flows. After large allocations to begin 2023 (not quite offsetting large redemptions to end 2022), net flow for these products has been muted in February and again in March putting Q1 2023 net inflow well behind the prior two years. Unlike the managed futures segment, performance does not appear to be a concern for investor interest. Yes, March produced an asset-weighted decline, but it was relatively small. Instead, it would appear as though investors are either pausing in new allocations or the possible demand for this exposure within global portfolios has been satiated for the time being. Regardless, it is notable that the second pillar of support for overall industry flows is not as strong as it had been.

Macro sees inflows in March while other negative flow trends somewhat persist.

Macro funds’ data indicated the largest net inflow for the universe since December 2021. While this is generally good, it’s the result of continued inflow for a small group of funds which outperformed in prior years and a pause in large redemptions from some very large products. In other segments, redemptions continued from long/short equity, a trend that’s persisted consistently since mid-2021. Credit fund flows are still negative, but nowhere near as bad as they have been, and redemptions from even driven strategies continue to be a bit elevated from recent past.

Source: eVestment. Monthly Absolute Net In/Outflow as a % of Prior Period Reported Assets, April 2018 – March 2023