Lackluster Hedge Funds in Q1 Can’t Stop Industry Growth

CTAs, macro, and relative value strategies disappoint, but credit strategies gain the most.

Hedge funds ended their five-quarter inflow streak in March, but the first outflows in more than a year can’t keep the industry down, reports data firm Preqin.

The $1.2 billion in outflows came largely from CTAs, macro, and relative value strategies in the period ended March 31, 2018. The three strategies have lost $9.2 billion, $5 billion, and $14 billion, respectively, in the first half of the year.

However, the good news for hedge funds is that they controlled a record high of $3.61 trillion in assets under management at the end of June.

Credit strategies saw the most inflows in the second quarter of 2018, ending June 30, at $11 billion. The strategy hit $19 billion in net asset flow for the first half of 2018.

“Investors continue to put more money to work in credit strategies, following net outflows from these strategies in 2017 and 2016,” said Amy Bensted, Preqin’s head of hedge funds.

In the second quarter, these strategies attracted the greatest inflows, following inflows of nearly $8 billion in the year’s first period. In contrast, appetite for commodity-centric CTAs appears to be faltering: Outflows of $9.2 billion, coupled with a difficult performance environment, has led to CTA AUM declining slightly to $281 billion.

In fact, 51% of funds with at least $1 billion worth of assets saw inflows during the second quarter, and only 31% of funds with less than $100 million reported gains.

“This may suggest that investors are seeking the security of larger fund managers with the possibility for the outsized returns associated with smaller funds being less of a priority, particularly with the expectations of a market correction growing for many institutions,” Bensted said.

On a regional basis, only North American hedge fund managers had positive returns during the quarter, netting $22 billion in capital, according to Preqin. Most funds (59%) saw either a spike or no increase to their capital.

European-based managers, however, faced the opposite. They have suffered negative returns for the second quarter in a row, losing $4.1 billion in the June 30 period. A 62% chunk of European funds felt net outflows during that time.

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