Asset Flows Update

Hedge fund industry AuM declined for the fourth consecutive month in July, falling $15.6bn, which extended the YTD decline to $123.7bn. The hedge fund industry did record performance-based gains of $3.1bn in July, supported by the rebound in global equity markets as the S&P 500 surged by 9.2%, but was unable to stem outflows ($18.8bn) as the likelihood of a global recession rose. Europe accounted for the lion’s share of AuM decline as the region recorded net outflows of $12.9bn, driven by rising risk-off sentiment as the European Central Bank raised rates by 50bps, its first interest rate hike in over a decade. By strategy, fixed income hedge funds posted the largest AuM decline of $6.9bn, as investors continued pulling funds out of the strategy — despite performance-based gains of $2.4bn — due to concerns that recurring rate hikes could cause a monetary-policy induced recession further down the road.

Asset flows data since January 2021

Key highlights for July 2022:

  • Hedge fund industry AuM declined by $15.6bn in July, extending the streak of consecutive monthly AuM decline to four months as investors pulled $18.8bn from the industry despite performance-based gains of $3.1bn. The industry stands at $4.01tn as at July 2022. YTD industry AuM decline increased to $123.7bn in July, driven by $39.8bn of performance-based decline and $83.9bn of net outflows.
  • Most hedge fund strategies have struggled to attract net inflows in 2022 amid the challenging market environment. Arbitrage/relative value has fared best YTD, with 46% of funds managing to attract net inflows. Whereas only 29% of fixed income and 31% of long/short equity hedge funds attracted net inflows in the same period.
  • Fixed income hedge funds posted the largest AuM decline of $6.9bn in July, as investors continued pulling funds out of the strategy — despite performance-based gains of $2.4bn. Fixed income ($9.2bn) and long/short equity ($4.8bn) posted the largest outflows in July as global central banks remained committed to further monetary policy tightening until price stability recovers. In terms of YTD outflows, fixed income and long/short equity have posted the steepest outflows of $40.9bn and $29.2bn respectively.
  • CTA/managed futures funds attracted a net inflow of $1.0bn in July as investors continue to look upon them favourably given their history of providing superior downside protection. CTA/managed futures bucked the negative trend to post YTD inflows of $8.4bn supported by investors' desire to protect their capital from the poor performance of equities and fixed income.
  • Europe accounted for the lion's share of AuM decline with $12.9bn outflows in July as investor risk aversion grew when the European Central Bank and Bank of England hiked interest rates by 50 bps and 25 bps, respectively. Europe also posted the largest YTD net outflows of $56.0bn - the imminent, deliberate contraction in Russian gas supplies could cause a spike in energy prices and tip the region into recession as winter approaches.
  • Funds in North America (43%) were most likely to have had inflows YTD as investors favor the region’s relative economic stability. The ongoing friction between Europe and Russia, aggressive monetary policy tightening by global central banks and China’s ongoing zero Covid policy and property crisis have raised the likelihood of a global recession.

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