The Morning Brief: Funds Suffer Greatest Outflows Since ‘09

The hedge fund industry suffered its largest quarterly outflow of capital since the second quarter of 2009. According to industry tracker HFR, total global hedge fund capital fell to $2.86 trillion, after suffering from some $15.1 billion of investor outflows. This is also the first time since 2009 the industry suffered outflows for two consecutive quarters. Of course, that 2009 surge in redemptions coincided with the beginning of a powerful bull market that followed the financial crisis. Oops. In the first quarter of 2016, event-driven strategies suffered outflows of $8.3 billion, with more than half coming from activist strategies. However, merger arbitrage enjoyed a net inflow of more than $400 million and fixed-income-based relative value arbitrage strategies saw an inflow of $5.3 billion. Equity hedge funds suffered $4.7 billion in withdrawals, bringing total assets to $806.5 billion, enough to remain the largest strategy.

HFR also found that most of the first-quarter outflows were concentrated among the largest firms. Hedge fund firms with more than $5 billion in assets, which account for 68.3 percent of all industry capital, reported net outflows of $10.7 billion. Firms managing between $1 billion and $5 billion had $3.6 billion leave their funds while firms managing less than $250 million enjoyed net inflows of $730 million.

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Richard Schimel is joining Kenneth Griffin’s Citadel to head up a new equities unit, according to a Reuters report. The Chicago firm currently has three equities units. Schimel will also sit on the firm’s investment committee.

“With Richard’s hire we continue to execute our talent growth strategies, establishing teams in talent-rich locations while also providing ample opportunities to promote and develop existing team members through a number of platforms,” Citadel wrote in a letter to investors, according to the report. Schimel is looking to hire up to 70 people over the next year, with plans to have six to eight teams of seven to nine people to cover various sectors, according to the report.

Schimel had earlier cofounded Diamondback Capital Management along with Larry Sapanski and Chad Loweth. At one point, Diamondback managed $6 billion. However, several years ago the firm got caught up in an insider trading probe, its office was raided by federal agents and portfolio manager Todd Newman was arrested. The Stamford, Connecticut firm then decided to shut down after receiving about $520 million in redemption requests, which amounted to 26 percent of assets at the time.

Diamondback ultimately settled with the government, agreeing to pay a $9 million penalty, and was able to stay open for two more years, unlike other firms that had been raided that day. (As a result of the investigations, Newman and Anthony Chiasson of Level Global were convicted of insider trading in 2012.) However, in late 2014 the U.S. Second Circuit Court of Appeals vacated the conviction. And earlier this year it was reported that the SEC will send back all or most of the $9 million to Diamondback.

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Barclays cut its price target on hedge fund favorite Apple from $142 to $131 and reduced its estimates. However, it maintained its overweight rating on the stock. In a note to clients the bank stressed that its new assumption is that iPhone units do not grow in 2016. “Fundamentals have not recovered meaningfully in the smartphone market or for Apple,” Barclays states. Shares of Apple rose slightly, to $107.13. Apple was the fourth most widely held stock among hedge funds at the end of the fourth quarter. We won’t know how popular it was in the first quarter until mid-May.

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Shares of Netflix, another popular hedge fund stock, rebounded by 2.6 percent to close at $96.77 one day after the stock sold off on disappointing guidance.

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