Evening Brief – 06.23.23
Deposits into hedge funds are exceeding withdrawals, possibly indicating improved investor optimism as the equity markets continue to show impressive strength, recession forecasts get pushed out, and as investors believe the end of the Federal Reserve’s interest rate hikes is in sight.
Month-over-month inflows nearly quadrupled in May, with multi-strategy and hybrid funds attracting the most capital, according to Citco, a global hedge fund and alternatives assets servicer.
Inflows reached $1.9 billion last month, compared with $500 million in April. New subscriptions exceeded $7.1 billion, outweighing the $5.2 billion in redemptions, despite hedge fund manager returns of only 0.4% for the month.
While managers of all sizes garnered fresh capital, funds with assets under management ranging from $5 billion to $10 billion generated the most interest, attracting $1.8 billion in inflows.
Firms with $1 billion to $5 billion in assets received $200 million. Meanwhile, the largest hedge fund managers with more than $10 billion in assets attracted $100 million in additional money.
In the multi-strategy space, the findings likely reflect the growing clout of these hedge fund firms, which are on the cusp of taking over equity-focused funds to become the dominant strategy in the industry.
Multi-strategy hedge fund managers, which gained 0.3% last month, attracted the most amount of capital in May, pulling in $1.7 billion in inflows, according to the report. Global macro hedge funds were down 1.4% in performance terms, but still pulled in $200 million in new capital. Investors also added $800 million to hybrid strategies, while fund of funds saw inflows of $200 million.
Still, a bit of caution is warranted. Citco noted that forecasts for the end of the second quarter suggest investor outflows are set to increase, with projections rising from $13.9 billion last month to $14.9 billion. Future outflows also ticked up to $10.9 billion compared with the previous month’s $8.7 billion.
Investors, meanwhile, withdrew about $700 million from long/short equity hedge funds, despite this segment gaining 0.9% last month. Event-driven managers saw a 0.9% performance dip, and registered net outflows of $300 million, while flows into arbitrage and emerging market-focused hedge funds remained steady.