Evening Brief – 11.22.23
Red October
The exodus of capital from the hedge fund industry ebbed last month, but investor flows remained negative as almost 33% of managers registered losses in October, according to new data published by hedge fund asset administrator Citco.
In October, net redemptions were $2.4 billion, with investors withdrawing $8.5 billion, outweighing $6.1 billion in new subscriptions. However, this was a notable decrease from September’s net outflows of $9.1 billion.
The decline comes after hedge fund performance in October fell modestly, losing 0.4% on average. Just over a third (36.4%) of managers reported positive gains, down from 43.5% the previous month. The industry remains up more than 8% year-to-date.
Research from the $1.8 trillion global hedge fund and alternative asset servicer, showed that net capital outflows were primarily seen in the long/short equity space, one of the best performing strategies this year, up 9.84% to the end of September, as investors sought to book gains from the strong stock market performance so far in 2023.
During October, allocators pulled out $3 billion from stock picking hedge funds, outweighing $700 million in new subscriptions. This resulted in $2.3 billion in net outflows. Still, this was an improvement over September’s net outflows of $6 billion from equity hedge funds.
After a hectic month in which $3 billion in new subscriptions nearly matched $3 billion in redemptions, multi-strategy hedge funds, which gained 0.7% in October, experienced $200 million in net withdrawals. Global macro hedge funds gained 2.3% in the month, extending an upward trend that began in June, despite slightly negative investor flows.
Commodity funds, where investor flows were generally muted, lost 2.6%, wiping out their 1.57% gain from the third quarter, while the remainder of the hedge fund sector generally registered modest losses.
Citco observed that the largest hedge fund firms with more than $3 billion in assets under administration were the only category to post positive results, with a weighted average gain of 0.1% in October. Managers with between $200 million and $500 million in assets performed the poorest, with a weighted average loss of 1.9%.
Citco’s current forecasted net outflows for the fourth quarter have increased to $22.8 billion.