Investors continued redeeming their hedge fund investments in October, maintaining a theme that has prevailed through 2022. Net outflows from hedge funds totaled $14 billion in the month, though positive investment gains narrowed the overall loss of assets to only $12.4 billion, according to a recent report from Nasdaq’s eVestment.
Funds using a market-neutral strategy were the only category of hedge funds that saw net inflows during the month of October.
The worst performers for the month were long-short equity strategy funds, which led all categories of hedge funds with outflows totaling $5.38 billion, followed by macro strategy funds, which saw outflows of $3.15 billion, and relative value credit, which had outflows of $1.6 billion.
“We have noted the issues facing credit strategies as being somewhat structural, in that there has been a lot of positive interest in private debt funds over at least the last two years, likely at the expense of hedge fund structures,” the report said.
Long-short equity, macro strategy and directional and relative value credit strategies have had a particularly tough year. Long-short funds have seen a total of $32.3 billion redeemed so far in 2022, compared to macro strategies’ $26.07 billion and directional/relative value credit strategies’ $28.9 billion.
The report notes that long-short equity strategies have money leaving and little coming back in, whereas the weakness in macro strategies stems from the greater economy. “The net outflows for macro strategies are the result of a much higher proportion of money moving in both directions,” the report said.
October was the fifth straight month of hedge fund outflows. After October’s drop, the fell to an estimated $3.41 trillion, according to eVestment data. The sizeable amount of assets under management accrued as the asset class has boasted average annual returns of 9.29% in 2019, 2020 and 2021. This year, hedge funds have reported average returns of -7.55%, eVestment reported.
If past years are any indication, the total outflow of funds will continue until the end of the year. Historical data for December almost always shows year-end net outflows that have tended to be larger and outsized compared to previous months.
According to eVestment, the total redeemed by investors from hedge funds in the calendar year will be approximately $100 billion. The data company’s report said it is unlikely 2022 net outflows will surpass the record levels recorded in 2016 ($112 billion) or 2019 ($102 billion).