Hedge Fund Assets Reach New Record Despite Outflows

Stockholm (HedgeNordic) – When asset valuations are getting stretched, market participants can get spooked very easily by relevant or not-so-relevant pieces of news. With volatility returning to markets and return expectations for long-only strategies moderating, one would anticipate alternative products and hedge fund vehicles to receive increased interest from investors. Recent statistics, however, show investors are pulling capital out of the hedge fund industry.

Hedge fund investors redeemed an estimated $14.7 billion from hedge funds in September, according to eVestment’s latest Hedge Fund Asset Flows Report. Last month’s outflow brought the overall volume of net flows for the third quarter into negative territory at $5.7 billion. In the first three quarters of 2018, net flows are flat to marginally positive at $70 million. Hedge fund industry assets stand at $3.31 trillion as of the end of September, according to eVestment.

Data collected by hedge fund data provider HFR, meanwhile, indicates that investors redeemed an estimated $9.1 billion in the third quarter of this year, following a net outflow of $3.1 billion recorded for the previous quarter. The third quarter represents the second consecutive quarter of net outflows. Investors pulled out an estimated $11.1 billion from the hedge fund industry year-to-date through September, whereas overall hedge fund assets increased by $34.4 billion this year on the back of performance gains. Despite capital outflows in the third quarter, performance led to a net increase of $8.4 billion in hedge fund industry capital to a record of $3.24 trillion. Hedge fund industry capital, therefore, started the final quarter of 2018 at a new record for the ninth consecutive quarter despite two successive quarters of capital outflows.

“Total hedge fund capital increased to a record despite a modest investor outflow as US financial markets began [the fourth quarter] near an inflection point in interest rates, economic growth, and equity market valuation,” says Kenneth J. Heinz, president of HFR, in a press release. “Critical drivers of investor allocation trends have expanded from performance and asset under management to also include an intense focus on fees, liquidity, firm management, European credit risk, social responsibility, and interest rate risk factor sensitivities. Funds which are able to position for and navigate this shifting transitional inflection point in financial markets are likely to lead industry performance and growth into 2019.”