… as event-driven and hedge fund strategies overcome outflows

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We don’t have any specialist event-driven hedge fund managers in Australia or New Zealand but, if we did, they would likely be riding high on an influx of new funding. With various forms of disruption, uncertain markets, and continuing CEO and corporate hubris, this is an M&A climate.

According to the latest numbers from eVestment, the global investment data and research firm, in the last eight months, investor flows to hedge funds have been positive only once, but that does not mean funds are not gaining new assets.

If you’re a large firm that performed well in 2018, chances are 2019 is feeling like a very positive year, eVestment says. For large firms that underperformed in 2018, then 2019 is likely feeling very different, says its latest report on hedge fund flows.

The report’s publication last week coincides with that of its traditional asset flows March quarter report (see separate item this edition).

Highlights from the hedge fund report include:

  • Investors redeemed an estimated US$1.36 billion from hedge funds in April. Year-to-date redemptions are now US$18.15 billion
  • There has been targeted interest in event-driven strategies in 2019, highlighted by elevated inflows in April
  • Macro-fund flows shifted to positive in April, pausing a trend of redemption pressures dating back to September 2018, and
  • Emerging markets hedge funds had inflows again in April. Allocations continue to be directed toward China-focused strategies.

There were a few larger targeted allocations within the event driven segment in April which helped lift the strategy’s profile during the month, the report says. Even though allocations were targeted, 56 per cent of reporting event-driven funds had inflows in April and there were no large redemption pressures evident. With US$5.19 billion of inflows, year-to-date, event-driven strategies have seen the most net new money in 2019 among primary strategies.

Among the other main strategies, macro flows turned positive after a string of redemptions. “After elevated losses in July/August 2018, there have been lingering redemption pressures facing macro funds,” the report says. “Prior to April, monthly flows have been negative in six of the last seven months with an estimated US$13 billion removed. April’s inflow of US$1.07 billion is a welcome shift to positive, and it was driven by the US$5.23 billion of inflows to funds able to perform well in 2018.”

Managed futures, which is a popular strategy for Australian and New Zealand hedge fund investors, continued to feel redemption pressure, the report says. April marks the 14th consecutive month where managed futures funds have had net outflows.

“The spark for this difficult stretch appears to be large losses in February 2018. Since then there has been two other noticeable drawdowns, but most recently performance has been very positive. The next few months will be of interest to see if there is new appetite for the products. There is an extended period of adverse performance which must be addressed, but recent returns will do nothing except help the strategy’s cause.”

But demand for hedge funds continues to exist within US public pension funds. “Outside of our calculated asset flow data, eVestment sees pockets of demand from US pension plans via documents in our ‘MarketLens’ solution, the research house says. “In a report to be released shortly, we note that, in aggregate, US public plans are slightly below target in their hedge fund allocations, which implies a level of demand to move current allocations in- line with targets.”

– G.B.

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