Asset AllocationApril 23, 2024

Hedge Funds Had Good Returns in February, but Investors Pulled Money Out Anyway

The 2.2% investment performance did not seem to matter, although a Nasdaq eVestment report shows that the outflows were concentrated in a few large funds.

Reported by Larry Light

Hedge funds, suffering for years from capital outflows, in February had their best investment performance since April. Alas, the global outflows continued in the second month of 2024. February typically has seen inflows.

The February 2023 net outflow was the first since 2009, and 2024’s February marked the second time, according to a Nasdaq eVestment report. This February, investors pulled out a net $780 million. On the plus side, the 2.2% return in February 2024 offset the redemptions. As a result, the hedge industry saw its assets under management expand by $74 billion to a $3.59 trillion total.

The second month of the year has long been a harbinger in terms of flows. “Historically, February’s data tends to reveal any notable early year inflows,” the report noted. Then it asked: “Does this mean the industry is headed for another triple-digit net outflow in 2024?” In 2023, $104.8 billion left the hedge fund market, and in 2022, $112.2 billion.

The report’s answer was that maybe February 2024 was better than it first appeared. For one thing, most hedge funds were net positive, but the whole picture was overshadowed by the redemptions from a handful of big funds, notably in the macro area. Macro funds focus on fixed income and the influence of interest rates. This strategy’s performance has lagged the rest of the industry, the report contended.

“There are large and isolated redemptions taking place within the macro universe,” the report stated. “These net outflows are skewing the picture for macro funds” and others.

On the other hand, multi-strategy and credit funds were back in positive flow territory in February. The industry’s largest category by assets, long/short equity, also had inflows for a change, and the report commented that the “fund flows looked pretty decent for the first time in a long time.”

Managed futures, which deal with commodities, had a good February in performance terms, up 4.2%. But the strategy continued to suffer from outflows (losing $760 million), perhaps due to unpleasant memories of its negative (down almost 1%) returns in 2023. Going forward, the report remarked, “Maybe the strong performance to start to 2024 will change that, but there is no sign of this yet in the data.”