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Hedge fund performance up but asset inflows down: Preqin

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The exodus from hedge funds continues with investors questioning unswayed by relatively strong performance from the alternative asset class.

Data from Preqin published in June covering the month of April, reveal that while global hedge funds suffered faltering performance, they have enjoyed a strong start to the year, and continue to fare better than their traditional asset class counterparts.

Preqin’s All Hedge Funds Index was 1.7 per cent lower at end of April, during which public markets were affected by “disappointing economics”.

The research house states: “Stubbornly high inflation in the US, which was 3.8 per cent year-over-year at the end of March and 3.6 per cent at the end of April, didn’t bode well for investors hoping the Federal Reserve would soon cut its base federal funds rate. Meanwhile, GDP in the world’s largest economy dipped closer to its historical average annual growth rate of 5 per cent.”

However, public equities and fixed income suffered even more over the period, with the MSCI World Index, reporting stocks were 3.7 per cent lower in April, while bonds as measured by the Bloomberg Global Aggregate index fell by 2.5 per cent, according to data from FactSet.

Preqin reports: “The effect of inflation on the markets, and by extension global interest rates, was reiterated in April. Any hint of movement in either direction has caused large swings in both public equities and public bonds. While global hedge funds have shown some correlation to those assets, they have benefited more from the upside than suffered the downside. Investors who have used hedge funds to protect against market downturns have so far seen their expectations met.”

Despite avoiding the worst of the market declines, investors have still been exiting hedge funds, with Preqin reporting that “equity hedge funds have taken the brunt of those losses”, experiencing USD6.7 billion in net outflows in the first quarter.

This marked the fourth consecutive quarter of net redemptions, totalling an estimated USD28 billion of capital moving elsewhere.

Preqin states: “Even as these numbers pale in comparison to the USD57.1 billion that was redeemed between the fourth quarter of 2021 and the third quarter of 2022, it certainly points to waning interest in the broader strategy.”

The diminishing allocations reported by Preqin follow similarly depressing figures from Nasdaq eVestment, which found the hedge fund industry was unable to stymie outflows despite positive performance across all strategies.

Investors withdrew an estimated net USD9.9 billion from hedge funds in March, up from USD780 million in February marking the 22nd consecutive month where industry outflows totalled more than inflows.

However, it is not all unwelcome news for the sector; Preqin reports that funds with assets less correlated to public assets have been buoyant.

Relative value strategies, which include equity market neutral funds, and Commodity Trading Advisors (CTAs) received USD7.4 billion and USD8.5 billion, respectively, of new client capital in the first quarter.

Preqin says: “Investors have shown an affinity to these assets recently, looking to focus more on strategies that will offset market risks and downturns, while upside is a secondary priority.”

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