Hedge Fund Flows and Performance Negative in October

Citi released its report on hedge fund activity for October highlighting flows, performance, leverage and short activity over the month. In a change of direction from September, both flows and performance were negative in October. Investors pulled more than $14 billion out of hedge funds in October, while aggregate performance of funds fell in the -0.50% to 0.60% range.

october 2016 hedge fund flows

Citi’s highlights from the report are as follows:

Hedge Fund Performance and Flows

  • Composite hedge fund performance, equal-weighted across funds, ended October in negative territory with returns ranging from -0.61% to -0.48% pivoting from the performance gains from September.
  • Year to date broad based hedge fund index returns are firmly in positive territory, coming in between +1.39% to +3.57%.
  • October proved to be a challenging month for Event Driven strategies returning -0.11%, Global Macro -0.55%, and Equity Long / Short -0.63%.
  • Fixed Income Arbitrage was the only strategy with positive returns finishing Oct-16 up +0.46%.
  • Global hedge fund industry assets fell in October by -$16.8 billion attributed to both broad based performance losses and net investor outflows.
  • Net investor outflows of -$14.2 billion in October marks the sixth period of net outflows this year and are the largest since +$25 billion in Jul-16.
  • YTD investor outflows now stand at -$74.3 billion compared to +$88 billion of inflows during the same period in 2015.

Fund Profiles

  • Across the subset of hedge funds reporting performance and AUM, the monthly median performance for large single funds (>$750 million) was -0.3%, medium single funds ($351 – $750 million)  -0.5% and small single funds (<$350 million) -0.7%.
  • Liquidity terms continued consistent patterns from previous periods.  The universe of funds that only require 30 days or less for redemption notices stood at 67%, consistent with trends throughout the previous 30 months. Across the entire subset of reporting funds, the majority (56%) required  no lockup (45%) or less than 1 year lock up (11%).

Leverage and Shorts Activity

  • On a global basis, gross leverage remained fairly constant at 2.71x in October versus 2.73x in September.
  • Investment strategies with the highest use of leverage were: Market Neutral at 4.8x , Multi Strategy 4.4x, Global Macro at 4.5x
  • Consumer Discretionary and Information Technology sectors which accounted for 38.2% of short executions in October while Consumer Discretionary and Information Technology sectors accounted for 37.2% of short covers in October.

For more information, or to request a full copy of the report, visit: Citi Business Advisory Group

  • At one time, perhaps 10-15 years ago, I thought of hedge funds (as a group) as being nimble, entrepreneurial risk takers. While there certainly are individual managers today that fall into that description, the industry as a whole seems to have become too large, lethargic and risk avoiding. Performance bears that out. Or is it just the macro environment that is making it hard for them to take risk and reward their investors for it? What are your thoughts?