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Investors Redeem $5 Billion From Hedge Funds in July

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Global investors redeemed $5 billion from hedge funds in July, according to eVestment.

Still, the month ended in the black, as positive performance increased assets under management by an estimated $16 billion, bringing total hedge fund assets to $3.1 trillion.

With July’s outflow, investors have allocated some $64 billion to hedge funds year to date. This compares with inflows of $102 billion in the first seven months of 2014—though investors redeemed nearly $14 billion in the final five months last year, eVestment said.

Event-driven strategies took the biggest hit in July, hemorrhaging $5.2 billion.

eVestment reported that last month’s biggest redemptions came from funds that had opened the year with big losses. The average decline in January from funds with the biggest redemptions in July was 4.2%.

It said outflows from this group were evident in both June and July, leaving it unclear whether redemptions were a near-term or slightly longer-term factor in periods of elevated losses.

Credit hedge funds had to return $4.8 billion to investors in July. This likely owed to a six months of performance losses, stretching from last August to January, according to eVestment.

It said that in the months immediately following that period, flows remained positive, but noted that the redemption cycle for credit strategies is typically longer than for more liquid or perhaps less levered strategies.

eVestment said recent allocation/redemption trends were very similar to late 2009, giving the sense that investors are very concerned with global equity and credit markets.

It said that although investors may expect hedge funds to provide relief from those markets’ downturns compared with traditional long-only strategies, the recent flow trend suggests they have been assuming a wait-and-see attitude at best.

Where Investors Wound Up

Macro funds enjoyed they largest inflows since January 2010, $8.5 billion.

Managed futures funds, which got back on track following performance losses in May and June, had inflows in July of $350 million. These allocations were below the average levels of the past seven months, but have been consistently positive over that span.

Investors allocated to commodity strategies for a second consecutive month in July, an exposure they have shown little interest in over the past several years, according to the report.

Multi-strategy fund flows continued their positive streak in July, though at their lowest level—$4.8 billion—since the monthly string of nearly uninterrupted inflows began two years ago.

eVestment said investors had added an estimated $40 billion into multi-strategy so far this year, making it by far the most popular hedge fund strategy ahead of macro and managed futures.

Emerging market funds experienced a slight outflow of $510 million in July, mainly from debt-focused funds, which lost an average of 2.4% in the first half.

This was not enough to offset the second quarter’s inflow of $2.2 billion. Still, flows are negative for the year following first-quarter redemptions of $5.7 billion.

eVestment said that despite slightly negative emerging market flows in July, investor interest in Asia, and China in particular, continued during the month, with dedicated China strategies reporting they had received an estimated $304 million in new capital.

It seems likely investors’ tune will change in August, following China funds’ performance during the recent market turmoil in that country.

Asia-domiciled funds continued to see strong growth despite the industry’s overall outflow in July. These have enjoyed inflows in nine of the last 10 months, receiving allocations of some $16 billion during that time.

— Check out Citigroup to Pay $180M for Defrauding Hedge Fund Investors on ThinkAdvisor.