Hedge funds have seen $55.9bn (£42.28bn) of outflows so far this year amid mediocre performance, which, if continued, will lead to the worst year for outflows since 2009.
Data from eVestment shows that an estimated $25.2bn left hedge funds in July, adding to existing outflows for the year. The data house adds that if the trend does not reverse 2016 will be the third year on record with net annual outflows, with 2008 and 2009 being the previous two.
Investors have been underwhelmed by hedge fund performance, with June and July seeing a pick-up in outflows from funds that have delivered losses so far this year. Outflows were also highest among credit, multi-strategy and event-driven funds.
“Investor redemptions from the industry continue to be driven by mediocre performance. Funds producing losses in 2015 are by far the primary source of outflows throughout the year into July. Additionally, in both June and July, redemptions have accelerated from within funds producing losses in 2016,” says Peter Laurelli, eVestment’s global head of research.
Emerging market funds saw their highest outflows in 17 months, with Asia-focused hedge funds seeing outflows. Outflows also rose in July for China-focused funds, with £209.1m of outflows. However, this remained below March’s outflows for the sector.
“While the bulk of the hedge fund industry’s redemptions have been coming from firms domiciled in the US, investing globally, it is important to note a distinction in the dispersion of flows by size and prior year performance across the industry’s domiciles,” says Laurelli.
“The US industry’s redemptions are targeted toward products which have produced losses, while funds which have performed well have gained new assets this year, in aggregate. Conversely, in recent months the Europe-domiciled industry has seen redemptions from each segment, large and small, 2015 winners and losers, while Asia-domiciled funds have experienced net redemptions across all segments both recently, and year-to-date.”
However, hedge funds that are delivering decent returns have seen inflows, with the funds seeing the top 10 inflows delivering an average return of 7 per cent.
One bright spot in the industry has been commodity funds, which have seen consistent net inflows so far this year, with $10.3bn of allocations in the past 14 months. Managed future funds also saw inflows, although some of the larger funds in the sector have underperformed and seen redemption requests.