After Months of Redemptions, Hedge Fund Flows Turned Positive Again

In its latest report, Citco breaks down which strategies and markets are gaining the most traction.

Illustration by II

Illustration by II

Allocations to hedge fund strategies were on the rise again last month.

After being hit with an unusual amount of redemptions earlier this year, hedge funds bounced back last month, with subscriptions outweighing redemptions for the month of November, according to Citco’s latest hedge fund update, released Tuesday.

The firm, an asset servicer with $1.8 trillion in assets under administration, found that new investments totaled $11.5 billion against redemptions of $8.4 billion, generating net inflows of $3.1 billion.

In terms of regions, funds in the Americas saw the highest net inflows at $1.9 billion, followed by Europe at $1.6 billion. Funds in Asia, meanwhile, experienced a small new outflow of $400 million.

Earlier this year, investors were curtailing their exposure to hedge funds in order to stay closer to their allocation targets. In North America, for example, investors were found to be over their average target allocation by more than three percentage points, according to Preqin, a firm that tracks the alternatives market.

Despite the recovery in November, Citco expects to see net outflows of $24.3 billion for the fourth quarter. However, the firm noted that current redemption levels were still below the levels seen during the same time last year.

Strategy-wise, funds of funds were found to be the most popular among investors, accounting for $2.3 billion in net inflows, followed by multi-strategy and hybrid funds, which added $1.8 billion and $1.2 billion, respectively.

Hedge funds of all sizes saw gains last month, generating a weighted average return of 2.9 percent, according to Citco. The top performers were the largest funds: Those between $1 billion and $3 billion returned an average 3.6 percent, while those with more than $3 billion yielded an average of 3.4 percent.

Trade volumes also rose in November compared to the same period a year ago. Daily average trade volumes were upwards of 700,000 — a dip from the previous month, but still 5.73 percent higher than last year.

“A reversal in volatility likely contributed to this small decline in November, with the VIX index [averaging] 23.13, down from 30.03 in October,” the report stated. “Nonetheless, if we look across the whole of 2022, one story stands out: We have seen volumes that are higher than ever before, coupled with a surge in volatility, which has also set new peaks.”