Hybrid, Multi-Strategy HFs Sees Strong Investor Flows in ‘24 — Evening Brief – 12.23.24
Investors are channeling more capital into hedge funds, with year-end flows anticipated to remain positive. However, November 2024 revealed notable variations in allocator preferences across different hedge fund strategies, as highlighted by Citco’s recent report.
Hedge funds recorded net inflows of $0.5 billion in November, driven by subscriptions totaling $8.6 billion against redemptions of $8.1 billion. Over three-quarters of hedge funds (76.8%) managed by Citco realized gains, an increase from 51% in October, as managers achieved a weighted average return of 2.4% in November, rebounding from October’s decline, bringing the year-to-date return to 13.3%.
Net inflows were highest in the fund of funds category, at $600 million, followed by arbitrage and hybrid strategies, each with $300 million.
Conversely, global macro hedge funds, which experienced a 2.6% increase last month, encountered the most significant capital withdrawals, with allocators pulling about $400 million from the strategy on a net basis.
Citco noted a disparity in investor interest across various strategies, with multi-strategy managers experiencing net outflows of $100 million, according to its latest Monthly Hedge Fund Update for November. Following a 3.4% gain by long/short equity hedge funds during the equity market rally, investors withdrew almost $200 million net from the sector.
The substantial inflows into hybrid and multi-strategy hedge funds this year underscore the growing investor appetite for diversified and flexible investment approaches. Hybrid strategies garnered approximately $13.7 billion in net new inflows since the beginning of the year, while multi-strategy hedge funds contributed $5.7 billion in net new capital.
Meanwhile, equity hedge funds have had the most significant net outflows, with investors withdrawing a net total of $10.6 billion this year. Citco indicated that robust returns from major global equity markets suggested that profit-taking was a significant factor behind this year’s capital redemptions.
Allocators are also seeking safety in numbers, with the largest hedge funds attracting the largest inflows this year. Hedge funds with assets under administration ranging from $1 billion to $5 billion attracted $6.9 billion in net new capital, while those with $5 billion and $10 billion experienced net inflows of $6.4 billion. Year-to-date, the largest hedge funds, which have a total asset value of over $10 billion, have received $2.2 billion in net inflows.
Net outflows have been observed only by the smallest hedge funds, which have less than $1 billion in assets, with a total of $10.8 billion as of the end of November.
Data indicates that the daily average trading volume rose by 3% in November relative to the preceding month, with trade volumes surging during the U.S. election and remaining high for a significant portion of the month, thereby perpetuating the pattern of increased trading activity observed since mid-2024.
“2024 has been the busiest in terms of trades processed compared to any previous year, and all strategies saw an increase this month, with high-frequency strategies experiencing the highest growth,” said Citco, which has more than $2 trillion in assets under administration.