Lackluster Hedge Funds in Q1 Can’t Stop Industry Growth

Hedge funds ended their five-quarter inflow streak in March, but the first outflows in more than a year can’t keep the industry down, reports data firm Preqin.

The $1.2 billion in outflows came largely from CTAs, macro, and relative value strategies in the period ended March 31, 2018. The three strategies have lost $9.2 billion, $5 billion, and $14 billion, respectively, in the first half of the year.

However, the good news for hedge funds is that they controlled a record high of $3.61 trillion in assets under management at the end of June.

Credit strategies saw the most inflows in the second quarter of 2018, ending June 30, at $11 billion. The strategy hit $19 billion in net asset flow for the first half of 2018.

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“Investors continue to put more money to work in credit strategies, following net outflows from these strategies in 2017 and 2016,” said Amy Bensted, Preqin’s head of hedge funds.

In the second quarter, these strategies attracted the greatest inflows, following inflows of nearly $8 billion in the year’s first period. In contrast, appetite for commodity-centric CTAs appears to be faltering: Outflows of $9.2 billion, coupled with a difficult performance environment, has led to CTA AUM declining slightly to $281 billion.

In fact, 51% of funds with at least $1 billion worth of assets saw inflows during the second quarter, and only 31% of funds with less than $100 million reported gains.

“This may suggest that investors are seeking the security of larger fund managers with the possibility for the outsized returns associated with smaller funds being less of a priority, particularly with the expectations of a market correction growing for many institutions,” Bensted said.

On a regional basis, only North American hedge fund managers had positive returns during the quarter, netting $22 billion in capital, according to Preqin. Most funds (59%) saw either a spike or no increase to their capital.

European-based managers, however, faced the opposite. They have suffered negative returns for the second quarter in a row, losing $4.1 billion in the June 30 period. A 62% chunk of European funds felt net outflows during that time.

Tags: Amy Bensted, Credit Strategies, Hedge Funds, Preqin

By luring people into transferring their pensions into fraudulent plans, “highly sophisticated scammers” stole an average of £91,000 ($115,508) per victim in 2017, according to UK pension watchdog The Pensions Regulator (TPR) and financial regulator The Financial Conduct Authority (FCA).

“£91,000 is a huge amount of money for someone approaching their retirement to suddenly have ripped from their savings,” Nicola Parish, TPR’s executive director of frontline regulation, said in a release. “Pension scams can cause victims significant harm—both financially and mentally.”

The FCA and TPR are collaborating on the launch of an advertising campaign called ScamSmart to urge the public to be on their guard when receiving unexpected offers about their pension, and to check with regulators who they are dealing with.

The ad campaign is targeting pension holders aged 45-65, which the regulators say is the group most at risk of becoming victims of pension scams. According to a new poll commissioned by the regulators, nearly one-third (32%) of pension holders aged 45 to 65 would not know how to check whether they are speaking with a legitimate pensions adviser or provider.

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The FCA and TPR said victims of pension scams can end up losing their life savings and be left facing retirement with limited income. The campaign aims to alert the public and educate them about the kinds of tactics used by pension scammers.

Cold calling, according to the regulators, is currently by far the most common method used to initiate pension fraud. They also said that one of the most common tactics among scammers is to offer a free pension review. The poll also revealed that 12% of 45- to -65-year-olds surveyed said they would trust an offer of a “free pension review” from someone claiming to be a pension advisor.

Other scam tactics involve:

Unexpected contact about a target victim’s pension via phone, regular mail, or email.
Promises of guaranteed high returns while downplaying the risks.
Offering unusual or overseas investments that aren’t regulated by the FCA, such as overseas hotels, forestry, and green energy schemes.
Putting people under pressure to make a quick decision, such as with time-limited offers and sending a courier with paperwork to sign.
Claiming to be able to unlock money from an individual’s pension (which is normally only possible from age 55)

The regulators said they believe that only a minority of pension scams are ever reported and are urging anyone who believes they may have been targeted to come forward.

“The size of individual pension pots makes pensions savings an attractive target for fraudsters,” said Mark Steward, the FCA’s executive director of enforcement and market oversight. “That’s why we’re urging anyone who is thinking about transferring their pension to check who they are dealing with and only use firms authorized by the FCA.”

Tags: Financial Conduct Authority, Pension, Research, Scams, The Pensions Regulator, UK