Evening Brief – 10.31.23
Hedge Funds Ended Q3 in the Green
Hedge funds gained 8.12% in the nine months to the end of September, according to Citco data, with nearly 75% of fund managers delivering positive returns year to date, despite capital outflows increasing in the third quarter.
Citco’s quarterly 2023 Q3 Hedge Fund Report examined investment performance, investor flows, trade volumes and treasury volumes across the hedge fund industry.
Citco, the global alternative investment asset servicer which has over $1.8 trillion in assets under administration, discovered that trading volumes in particular assets, including futures on rates, commodities, and indices, surged during the period of elevated volatility, while hedge funds’ treasury volumes also increased.
Mid-sized hedge fund managers produced the strongest returns in the third quarter, with firms managing $500 million to $1 billion attaining weighted average returns of 1.41%, while those managing $200 million to $500 million added close to 1%.
In contrast to prior quarters, all other categories were negative: $3 billion+ firms lost 0.22%, $1 billion to $3 billion managers lost 0.15%, and managers with less than $200 million lost 0.31%.
On a year-to-date basis, however, the largest hedge funds continue to lead, with $3 billion+ managers up 10.29% on average, followed by the $500 million to $1 billion group, which added 8.07%. Funds with $1 billion to $3 billion in assets have dropped to 5.58% year to date.
The smallest funds, having assets of less than $200 million, had a weighted average return of only 1% for the year.
“Funds with between $200 million to $500 million are enjoying a better spell of performance and are now the third best performers in terms of assets under administration (AUA) year-to-date, at 6.48%,” Citco reported.
Macro hedge funds, meanwhile, gained 3.07%, recouping losses experienced earlier in the year after the Silicon Valley Bank crisis and bond market disruptions. However, figures reveal that these funds are still down 1.67% year to date as of the end of September.
Similarly, commodities-focused hedge funds gained 1.85% as energy prices rose during the summer. However, they are still in negative territory year to date, down 2.57%.
Long/short equity and multi-strategy managers were flat for the quarter, but Citco data reveals they remain the industry’s top performers in 2023, with long/short equities up 9.84% year to date and multi-strategy ahead with a 10.22% increase.
Despite the gains, hedge funds experienced net outflows of $12.7 billion, a significant increase from the previous quarter’s $7 billion, as investor withdrawals from long/short equities strategies totaled $7.4 billion.
Meanwhile, treasury volumes increased on a quarterly and annual basis, despite multi-year high interest rates. Treasury payments totaled 125,716, up 5% from the same quarter last year and up from 123,037 transactions in the previous quarter. This was only 2% less than the record 127,655 payments received in the fourth quarter of 2022.