Hedge Fund Losses Accelerate During Second Quarter

Hedge funds lost ground again during this year’s second quarter, according to Citco data, which show that the hedge funds the Citco group administers lost 6.81% for the three months ending June 30, after declining 3.23% in the first quarter.

In addition to the quarterly loss, the trend of net inflows into hedge funds ended, which a Citco report says had been the case each quarter of 2021 and in the first quarter of 2022. The data also show that 32.81% of funds delivered a positive return during the second quarter, down from 40.21% in the first quarter.

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The “event driven” sector of the hedge fund industry, which was among the top performers last quarter, was the worst performer in the second quarter, losing 17.04%, followed by equities and multi strategy, which declined 7.98% and 7.52%, respectively, while fixed-income arbitrage was down 4.03%. Meanwhile, ccommodities and global macro were the only categories with positive gains, returning 4.58% and 0.79%, respectively.

As was the case in the first quarter, the report says, the largest funds suffered the biggest losses, as hedge funds with $3 billion or more lost 8.14%, followed by hedge funds with $200 million to $500 million, which dropped 6.36%. Citco’s report notes that this is in sharp contrast to last year, when the largest hedge funds were consistently the top performers.

There were a total of $7.8 billion of net redemptions to Citco-administered funds in the second quarter, with gross subscriptions of $40.1 billion and gross redemptions of $47.9 billion. However, the report notes one trend that has stayed consistent with 2021 and the first quarter of 2022: There were net inflows for the months intra-quarter, with the quarter-end trading cycle experiencing outflows.

“For example, subscriptions and redemptions cancelled each other out at $10.9 billion each in April, with $3 billion of net subscriptions in May and $10.9 billion of net redemptions in June,” says the report.

Despite the increase in losses, Citco’s report says some signs indicate things could turn around in the third quarter.

“Although the hedge fund sector continued to see pullback in terms of performance across most strategies in the second quarter,” Declan Quilligan, head of hedge fund services at Citco Fund Services, said in a statement, “our most recent data for July shows a post-Q2 swing back into positive territory for almost all strategies – with 69.9% of funds posting positive returns.”