Widespread Redemptions Shake Hedge Funds As Losses Mount

Hedge funds recorded widespread redemptions covering nearly all strategies and size categories last month as stock and bond markets around the globe continued to plunge. Amid this extensive bear market, funds administered by Citco saw their losses widen dramatically to -3.1% in September, compared to the -0.6% return recorded in August.

However, the firm also pointed to a wide dispersion in overall returns, as evidenced by the median return of -1.7% for September, which showed that the biggest hedge funds were the worst performers. Last month, only 30.8% of the hedge funds administered by Citco were in the green—a dramatic decline from the 56.5% of funds that generated positive returns the month before.

Hedge fund returns by strategy

The world’s stock and bond markets remained in freefall in September, hindering hedge funds’ attempts to generate positive returns. Multi-strategy funds were the worst performers last month, with a weighted average return of -5.6%. Equities funds have also performed poorly, losing 2.8% in September.

On the other hand, commodities remained the best-performing strategy, with a weighted average return of 1.9%. Global macro funds trailed close on the strategy’s heels with a return of 1.8%.

There were sizable dispersions among multi-strategy and commodities funds, which saw median returns of -0.2% and -0.1%, respectively. Global macro funds also had a dramatic dispersion, as demonstrated by their median return of 0%. Equities also had a significant dispersion with a median loss of -4%.

Meanwhile, fixed-income arbitrage funds generated a weighted average return of -1.9% and a median return of -2.2%.

Returns by size

The largest hedge funds with over $3 billion in assets under administration continued to be the worst performers in September, losing 3.7% on a weighted average basis. However, the median return for this size group was flat, indicating a high level of dispersion that signaled even worse performance among the largest funds in the group.

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All other size groups were also in the red for September. Funds with less than $200 million in assets recorded a weighted average return of -2.6% and a median return of -1.8%, while those with $200 million to $500 million saw median and weighted average returns of -2% and -2.4%, respectively.

With a median return of -1.5% and a weighted average return of -2.9%, the $500 million to $1 billion category had the second-widest dispersion after the $3 billion+ group.

Investor flows

Citco observed increased capital activities in September compared to recent months, as the markets generally declined across the board. The month saw massive redemptions as investors pulled $21.7 billion from the hedge funds administered by the firm. That’s about double the investor inflows at $11.2 billion, resulting in net outflows of $10.5 billion in aggregate for the hedge funds administered by Citco.

The firm reports that those redemptions were evenly spread across the various size categories, with the largest group covering funds with over $10 billion in assets under administration seeing the largest net redemptions at $3.1 billion. The smallest funds with less than $1 billion recorded the lowest net outflows at $2.1 billion.

Most strategies also recorded net outflows in September as investors pulled the most from equities and multi-strategy funds at net outflows of $5 billion and $4.3 billion, respectively. However, investors looked favorably upon global macro and hybrid funds, which saw net inflows of $100 million and $1.7 billion, respectively.

Hedge funds in all three regions recorded net outflows, with funds in the Americas taking the biggest hit with $5.1 billion in net outflows, followed by Europe with $3.1 billion and Asia with $2.2 billion.

Investors expect to continue redeeming capital from hedge funds, with another $12.6 billion slated for the fourth quarter and $6 billion in 2023.