Data and Analytics

Hedge Fund Industry Asset Flow Report: July 2023

BY PETER LAURELLI, CFA | EVESTMENT GLOBAL HEAD OF RESEARCH

Amid Very Light Volume of Asset Movement, Flows Net Negative in July

The hedge fund industry continued to see assets trickle out in July 2023. Both aggregate flows and volume of asset movement were very light during the month, which is typical of this month’s data. Still, the fact remains that July was the 14th consecutive month of net outflows for the hedge fund industry.

The most notable themes during the month, beyond the fact worth reiterating that it was a light month of investor activity, were that managed futures funds regained some capital raising steam, investor interest in continuing to allocate heavily to multi-strategy managers has clearly abated, and there has been some signs of light in the hedge fund credit/fixed income space. Other flow themes continued during the month, redemptions outpacing new allocations to long/short equity and event driven products, and somewhat light net outflows from macro funds.

Investors removed an estimated net $5.6 billion from hedge funds in July. Performance accounted for an increase in assets. The result of both factors was a $26.3 billion increase in assets to an estimated $3.463 trillion.

Industry Flows

eVestment Hedge Fund Data Tables from July 2023.

Volume of Net Flows

There was not much movement of assets in/out/around the hedge fund industry in July 2023.

The volume of asset movement (the absolute value of fund-level net in/outflows vs. prior period assets) in July 2023, was the lowest monthly level we’ve seen in the last five years. July’s data tends to show light flow, as does August’s, and so this month’s data is not surprising. What net inflows there were appeared to be relatively broadly dispersed as were net outflows. From a high level, July 2023 appeared to be a mundane month for asset movement in the industry.

Meaningful allocations returned to managed futures strategies after a mildly concerning period.

First and foremost, managed futures strategies are having another (relatively) solid year attracting net new assets. It has not been without question, however. After notable asset-weighted performance declines in November 2022 and again in March 2023, investors’ appetite appeared to waiver. Elevated redemptions appeared in December 2022 and again in April/May 2023 before abating in June. July’s net inflows were the largest of any segment in the industry and pushed YTD net inflows above $5 billion, while no other segment, including multi-strategy, is above $ 2billion.

Multi-strategy funds saw more assets trickle out in July.

Net flow for multi-strategy products remains positive in 2023, but over the last three months we have seen pockets of redemptions among funds that have muddied the otherwise positive picture for this segment. Net outflows in July were not large, but they were the third monthly net outflow in a row. Redemptions did come from a small group of products which performed relatively poorly compared to some other large funds, but in July we saw an isolated pocket of redemptions from a few funds which have performed very well for an extended period. What recent months’ data is beginning to indicate is that investor interest in continuing to allocate heavily to multi-strategy products has waned. Whether this sentiment continues into year-end we’ll have to see, but the data shows that some investors are redeeming or rebalancing their hedge fund allocations and segments of the multi-strategy universe are being impacted.

There are some bright spots in the HF credit space.

The net flow data for July indicated that there has been some renewed interest in hedge fund products operating in the credit/fixed income space. The level of net flow in July was on par with November 2022, both of which are the largest monthly net inflows since early 2021. The theme in this segment has been firmly negative for an extended period, however, and so we will take July’s data with a wait-and-see attitude. It is notable that while directional and relative value credit funds have seen interest, distressed managers saw net outflows for a second consecutive month in July.

Long/short equity and event driven continue to weigh on aggregate net flows.

Combined, these strategies have seen over $35 billion of assets removed in 2023. Net outflows for event driven products of over $18 billion so far in 2023 are at the highest level since 2016. Despite the elevated redemptions, there are several other segments where a higher proportion of products are seeing money leaving.

Source: eVestment. Monthly Absolute Net In/Outflow as a % of Prior Period Reported Assets, August 2018 – June 2023

eVestment Hedge Fund Flows chart with data from July 2023.

 

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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