Stockholm (HedgeNordic) – Hedge fund industry assets dropped below $3 trillion for the first time since the third quarter of 2016 after investors pulled a net $33 billion from hedge funds in the first quarter. This amounts to about one percent of industry assets and represents the largest quarterly outflow since investors redeemed $42 billion in the second quarter of 2009, according to Hedge Fund Research.
Hedge fund industry assets declined by $366 billion during the first quarter to $2.96 trillion from the prior quarter’s record of $3.32 trillion. Performance-based asset losses amounted to $333 billion in the first quarter, reflecting a broad-based sell-off in equity markets and widening credit spreads. The net outflow of $33 billion is the fourth-largest on record, according to Hedge Fund Research. The three largest quarterly outflows occurred from the fourth quarter of 2008 through the second quarter of 2009.
“Investors reacted to the unprecedented surge in volatility and uncertainty driven by the global coronavirus pandemic with a historic collapse in investor risk tolerance and the largest capital redemption from the hedge fund industry since post-Financial Crisis,” stated Kenneth J. Heinz, President of HFR, in the company’s quarterly report. “While volatility and market dynamics remain fluid through early 2Q, dislocations created by indiscriminate selling from traditional asset management have created significant opportunities for specialized long/short funds, which are likely to benefit both forward-looking funds and institutional investors in coming quarters,” he added.
Investors withdrew an estimated $22 billion from macro strategies in the first quarter despite the group leading industry performance. Total capital invested in macro strategies decreased to $561 billion. In this strategy group, quantitative trend-following CTA strategies suffered an estimated outflow of $19 billion, partially offset by investor allocations of $3.8 billion to fundamental macro discretionary strategies.
According to Hedge Fund Research, outflows were concentrated in the industry’s largest firms, with an estimated $20.6 billion redeemed from firms managing more than $5 billion. Firms managing between $1 billion and $5 billion in assets under management experienced a net outflow of $11 billion. Investors redeemed $1.6 billion from firms managing less than $1 billion. Hedge funds lost less money than the broader market during the first quarter of 2020. The HFRI Fund Weighted Composite Index fell by 9.4 percent during the quarter, whereas the S&P 500 fell by almost 20 percent.
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