By Peter Laurelli, CFA | eVestment Global Head of Research
June data has historically indicated net outflows for the hedge fund industry, and while this June continued that theme, the difference was in the magnitude and breadth of redemptions, both being larger than normal.
Digging deeper into the data, however, we see the dominant flow themes for the year held true at the strategy level. Redemptions from funds focused on credit markets were both elevated and widely felt, while there were large, but more targeted outflows within the long/short equity and macro segments, and both managed futures and multi-strategy universes had moderate net outflows.
June was also a very difficult month for performance across capital markets, but hedge funds generally performed well. The largest funds tended to outperform their peers during the month, which may support fund raising for the remainder of the year, especially in the managed futures and multi-strategy segment where those funds have dominated capital raising in 2022.
Net outflows in June were largest and most widespread since the COVID-19 pandemic onset.
Historically, if there is a net outflow, the month with the largest redemptions has been December, followed by June. There have been a couple of exceptions over time, but to see a large net outflow at either a year-end or half year-end period is not abnormal. What makes June 2022 a bit different is that the net outflow was larger than normal (if there is a June net outflow, the long-term average is near $14 billion) and the breadth of redemptions was high, with 60% of reporting managers’ data indicating a net outflow. This breadth of redemptions is the widest since March 2020, but there have been several months since 2016 when the breadth of redemptions has been this high or higher. The volume of net flow was lower than normal and when looking at other metrics like the proportions of products gaining or losing large chunks of assets it becomes clear that June was generally about investors removing smaller amounts from many products along with little demand for new allocations.
No major categories had net inflows in June, but flow preferences remained similar to the rest of the year.
It is rare for no primary strategy, no general asset class, or any regional preferences to see aggregate net inflows in a month. Even back in March 2020, there were net inflows for the event driven segment. In June, despite the breadth of redemptions, investor preferences for the rest of the year seemed to hold up. The segments seeing the largest net inflows prior to June, managed futures and multi-strategy, both had moderate net outflows during the month. Additionally, long/short equity and directional credit have been having the most difficulty maintaining allocations and this continued to be evident in June.
Breadth of redemptions varied significantly by strategy in June.
While the industry-wide breadth of redemptions was 60% in June, flows at the strategy-level varied and tell a different story for each. The breadth of redemptions from managed futures was in-line with the overall industry, but the two leading outflow segments had very different levels. 56% of long/short equity products had redemptions in June, but over 66% of directional credit products had outflows, while the breadth was less than 50% for macro funds. This means there have been more concentrated net outflows within the macro and long/short equity segments and much more widespread outflows across credit. The overall level for all funds focused on credit markets was 65% in June. These metrics fit the general themes for all of 2022, which has seen investors broadly leaving credit strategies, elevated redemptions from macro funds, but targeted to fewer products, broader success within the managed futures segment and targeted, but large allocations to multi-strategy products.
Volume of Net Flows
Source: eVestment. Monthly Absolute Net In/Outflow as a % of Prior Period Reported Assets, Jan 2015 – June 2022