Investors redeemed an estimated $10.3 billion from hedge funds in September, bringing Q3 redemptions to $29.2 billion, a level not seen since Q1 2009, according to the just-released September 2016 eVestment Hedge Fund Asset Flows Report. More than half (55%) of products experienced outflows and YTD outflows stand at $59.9 billion, indicating a potential crisis situation for the industry, according to report author and eVestment Vice President of Research Peter Laurelli.
The level of industry redemptions in Q3 were the largest of this current four-quarter-long outflow trend, and largest since Q1 2009. However, to put current redemptions in perspective, the cumulative outflow in the four quarters of $86.7 billion is less than half the level of redemptions in just Q1 2009. The difference, however, is that overall financial markets are clearly not operating in crisis mode this time.
Total industry AUM still stands above the psychologically important $3 trillion mark, but at $3.026 trillion, not by much.
Some other interesting points from the report include:
· For much of this year commodities funds have benefitted from inflows as investors saw opportunities after a long string of dismal performance. But after two consecutive monthly performance declines, commodity funds, at $0.62 billion, experienced their largest monthly investor outflow since March 2015. YTD flows are still positive at $11.24 billion, but that number could shrink if investor sentiment continues to turn negative in the last quarter of the year.
· Managed futures funds experienced their fourth consecutive monthly inflow in September, at positive $0.73 billion. With Q3 net inflows of $6.35 billion, managed futures funds were the only primary strategy where investors allocated with any commitment. However, twice as many funds experienced outflows as inflows in September and the universe has produced asset-weighted performance declines in five of the last seven months.
· In spite of positive performance recently, distressed funds and event-driven funds both saw outflows in September of $1.13 billion and $2.26 billion in respectively. Both continue to add to their outflows this year, with distressed funds chalking up outflows of $5.64 billion YTD and event-driven funds seeing a whopping $33.3 billion in outflows YTD.
· Emerging markets funds offer a bit of good news for the industry, with $1.09 billion in inflows in September, but they are still negative for the year (with outflows of $0.54 billion YTD). But this is just a shadow of the outflows of $7.67 billion the industry saw in 2015.
· Investor flows for China-focused funds was very slightly positive among reporting funds in September. This is potentially significant as negative sentiment has prevailed across the China fund universe since August 2015. Since then, up until September, investors have removed over $1.2 billion from China funds.
· Unlike China, sentiment to Brazil focused funds was not positive in September, but was positive for Q3 thanks to inflows in July. Flows have been mixed, but negative for the year.
To download a full copy of the report, please click here.