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Hedge fund flows turn south in March

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Hedge fund investor flows turned negative in March, snapping a two-month positive run, as investors redeemed an estimated $12.4 billion during the month, according to a new report.

eVestment published this finding in a first-quarter report on hedge fund flows. The report’s findings are based on the company’s database of traditional and alternative strategies.

Despite the outflow, the report states, net flows of hedge funds remained positive in the first quarter of 2013. Investors added $7.6 billion and performance added $56.1 billion, increasing total industry assets under management by 2.5 percent to $2.7 trillion in the first quarter.

“Early indications show fund of funds flows were highly negative again in Q1, causing FoFs to continue to be a drag on overall hedge fund flows as new direct allocations are being offset by FoFs redemptions,” the report states. “This outflow pressure has made any streak of positive flows for the industry hard to come by.

“Investors continued to crowd into credit strategies in March,” the report adds. “The universe was the only market exposure with net inflows in March, and Q1. Investors added an estimated $4.6 billion during the month, bringing Q1 2013 inflow totals to $23.0 billion.”

Among the report’s additional findings:

  • Despite the inflows to credit strategies, mortgage-backed securities-focused funds have seen a disruption in their constant inflows over the last four months. After a seven-month span of consistent positive flows ending November 2012, during which mortgage-backed securities focused funds took in an estimated $6.1 billion, the group has seen outflows in three of the last four months.
  • Macro strategies had an estimated $2.3 billion of redemptions in March; however first-quarter flows remained positive.
  • Redemptions of managed futures in the first quarter were the largest since Q1 2009, and third largest on record for the group.
  • Redemptions of equity hedge funds surged to $6.1 billion, bringing first-quarter outflows to $9.2 billion.
  • Emerging market investor outflows declined in each of the last four months, turning positive in March.