by Dismal-Jellyfish

Source: www.evestment.com/news/hedge-fund-industry-asset-flow-report-june-2023/

Highlights:

• June 2023 witnessed the 13th straight month of net outflows in the hedge fund industry.
• June’s redemptions were lighter compared to previous years, with an estimated net $13.12 billion taken out, though it still resulted in the industry’s assets growing by $39.5 billion to approximately $3.439 trillion.
• Historically, June is a month where investors tend to withdraw assets, but the $13 billion removed this year was relatively less than the over $18 billion average of the last four years.
• The month saw increased investor activity and inflows were more broadly distributed across the industry even though redemptions surpassed inflows.
• Multi-strategy products faced some significant redemptions in June, though they maintained a net positive flow for the year.
• In contrast, managed futures products saw a return in allocations after two months of redemptions.
• Equity-focused strategies, including long/short equity and event-driven funds, experienced continued withdrawals, with over $30 billion removed in the first half of 2023.
• Despite global equity markets bouncing back, long/short equity products led in returns, while event-driven strategies had varied outcomes.

REMINDER:

REMINDER:

109th Annual Report of the Board of Governors of the Federal Reserve System to Congress: “Based on a number of measures, leverage at hedge funds during 2022 stood above its historical average.”

June 2023 Senior Credit Officer Opinion Survey: “For hedge funds, around 1/4 of dealers, on net, reported nonprice terms tightened somewhat on securities financing transactions & OTC derivatives over the past three months.” Worsening liquidity and deteriorating counterparty strength cited as ‘why’

TLDRS:

• June 2023 witnessed the 13th straight month of net outflows in the hedge fund industry, with an estimated net $13.12 billion taken out.
• May marked the 12th consecutive monthly net outflow for the hedge fund industry and was also the largest net outflow for the month of May since at least 2009.
• Investors removed an estimated net $9.96 billion from hedge funds in May.
• Investors pulled $11.57 billion out of hedge funds in April
• Investors removed an estimated net $3.32 billion from hedge funds in March.
• Investors removed an estimated net $4.83 billion from hedge funds in February.
• Investors removed an estimated net $4.18 billion from hedge funds in January.
• Investors removed an estimated net $111 billion from hedge funds in 2022.
• From 1/1/2022-6/30/23, Investors have removed $157.98 billion from hedge funds.
• Hedgies r fuk!

Full Report:

Net Outflows Continued in June as Overall Volume of Flows Rise

June marked the 13th consecutive monthly net outflow for the hedge fund industry. Compared to prior Junes’ data, however, the redemptions in June 2023 were relatively light and what inflows the industry did see during the month were less concentrated, which is a generally positive theme.

Still, no matter how one slices it, the industry continues to face aggregate negative investor sentiment. Investors continued to redeem from equity-focused strategies and the recent pillars of support, multi-strategy and managed futures, have each faced some headwinds.

In a typical year, most meaningful allocations to hedge funds tend to shown up in the first half of the year’s data. With that in mind, it is extremely likely that 2023 will be another year of net outflows for the industry, though redemptions will likely not be as large as those in 2022.

Investors removed an estimated net $13.12 billion from hedge funds in June. Performance accounted for an increase in assets. The result of both factors was a $39.5 billion increase in assets to an estimated $3.439 trillion.

Industry Flows:

June tends to be a heavy redemption month, but net outflows in June 2023 were lighter than recent years.

In each of the last seven years, reported data for June has indicated investors have used the mid-year point to remove assets from the industry. In the prior four years, investors have removed an average of just over $18 billion, including over $23 billion in 2022, which makes the $13 billion removed in June 2023 better than recent history. While that is positive, June’s net outflow was the industry’s 13th consecutive month of redemptions.

The volume of asset movement in the industry was elevated in June and new net inflows were broadly dispersed.

The volume of net flow is a measure of investor activity during a month. The absolute value of product-level net flow in June 2023 was larger than it had been in either of the prior two Junes. Additionally, the bulk of what inflows there were in June 2023 were spread more broadly than they have been in recent months. These two metrics together, along with data indicating net outflows were lower than comparable prior months implies that while redemptions did outpace inflows in June 2023, there were some meaningful dollars coming in and those allocations were more widely dispersed across the industry compared to what we were seeing when redemption pressures resumed in 2022.

Volume of Net Flows:

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

Investors used the mid-year redemption period to remove some assets from multi-strategy products.

There were a handful of large redemptions within the multi-strategy segment in June which weighed on the strategy’s aggregate net flow picture during the month. Reported data indicated a similar, though larger, chunk of redemptions occurred in December 2022. Despite these outflows in June, net flow for the year remained positive. After relatively good returns in the difficult environment covering most of 2022, the largest multi-strategy managers continue to outperform most subsets of the hedge fund industry in 2023.

Allocations returned to managed futures products.

After two consecutive months of redemptions from managed futures products through May 2023 following some elevated performance losses in both March 2023 and November 2022, there was a question mark on investor sentiment to the strategy. June’s net inflow, while not erasing concern, is a positive indication that investor sentiment maintains some positive momentum.

Investors continued to redeem from equity-focused exposures impacting both long/short equity and event driven funds in June.

Event driven products, along with long/short equity, continued to face pressure from investors through June. The two segments have seen a net of over $30 billion removed in the first half of 2023. For the year, nearly 70% of long/short equity managers’ data indicates net outflows, while only half of the event driven space appears to be dealing with negative investor sentiment. While global equity markets have been rebounding in 2023, returns from the largest long/short equity products have been leaders among the hedge fund industry. The largest event driven managers, however, have produced mixed returns, though some of the segment’s very largest managers are producing excellent returns in 2023.