Why This January Was the Worst for Hedge Fund Flows in Years

Investors redeemed an estimated $14.3 billion more than they gave to hedge funds at the start of the year.


Illustration by II

On the state of hedge fund flows so far in 2024, an eVestment report out Wednesday put it bluntly: “This was not a great start to the year.”

A lot more money was pulled from hedge funds than was invested in them at the start of 2024, which could be a warning for the months to come. In January, investors yanked an estimated $14.3 billion from hedge funds, the second largest net outflow to begin a year since 2009, according to Nasdaq’s eVestment. The largest January net outflow over the past 15 years was in 2016 when there was $20 billion of outflows.

To put January 2024 in perspective: No month during the past seven years had a net inflow or outflow greater than $10 billion and the larger values tended to be positive, the report said. However, positive hedge fund performance also helped overcome the outflows; total hedge fund assets under management were up $19.9 billion in January to an estimated $3.5 trillion.

In addition to lower inflows, the number of funds getting new money has recently dipped. In January of 2024, 42 percent of products reported net inflows, down from about 50 percent during the same month in the past several years.

“What’s making the January net outflow the largest since 2016 is the result of two factors: very few meaningful new allocations, which isn’t rare in January’s data, along with very few but large redemptions and a few smaller outflows. If this were any other month than January, it wouldn’t feel so bad,” the report said.

Other metrics weren’t as negative, eVestment said. Just 24 percent of funds experienced redemptions greater than 2 percent of their assets — the same or slightly fewer than in recent years. The portion of funds that lost 5 percent or more of their assets due to redemptions was the lowest since at least 2016.

Long-short equity and macro were the categories of funds that had the largest redemptions, but they were concentrated within a small number of firms. Lackluster returns could be a reason. Big long-short equity funds generally underperformed during the few years leading up to 2022 — an abysmal one for almost all stock pickers — and then didn’t fully participate in the rally since then. “That time frame is still a relatively narrow window in an investment life cycle, but at the same time it is impossible to ignore the size of the redemptions and performance relative to peers,” the report said.

Aside from long-short equity and macro funds, January wasn’t all bad. Some managed futures and multi-strategy products had redemptions but “at the fund-level nothing that appeared concerning.” Distressed strategies were the only major ones to show aggregate net inflows to start the year.

The January outflows aren’t a definitive omen for hedge funds this year.

“January typically isn’t a month which defines a year, but when it has been negative the year’s flows tend to head in that direction,” the report said.