Hedge Funds Just Had Their Worst Quarter Since 2009

Hedge fund assets plunged by $366 billion in the first three months of 2020, as investors fled money-losing strategies in the highest volume since the last recession.

According to industry tracker HFR, investors pulled a net $33 billion during the first quarter — the most since $42 billion exited in the second quarter of 2009. Outflows in the first quarter of 2020 exceeded any three-month period on record outside of the last financial crisis and its aftershocks, according to HFR, which has industry data going back to 1990.

“Investors reacted to the unprecedented surge in volatility and uncertainty driven by the global coronavirus pandemic with a historic collapse in investor risk tolerance and the largest capital redemption from the hedge fund industry since post-financial crisis,” HFR president Kenneth Heinz said in a statement.

In total, the net redemptions amounted to roughly 1 percent of industry holdings, HFR said. By comparison, outflows during the one-year period from July 2008 through the end of June 2009 wiped out 16 percent of global hedge fund assets. 

This past quarter’s redemptions occurred as hedge funds incurred sharp losses across most strategies, erasing a total of $333 billion. HFR’s fund-weighted index, which tracks all strategies, was down 9.4 percent for the quarter, including a 7 percent loss in March. 

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Event-driven hedge funds performed the worst, according to HFR, which reported a quarterly loss of 15.3 percent for its event-driven index. The strategy accounted for $2.4 billion in net outflows.

The most redemptions occurred at macro hedge funds, which lost $22 billion from net outflows during the first quarter. Ironically, macro funds were the best performers, with HFR’s macro index gaining almost 1 percent in March to end the quarter in the black. Currency hedge funds led the macro category, with a quarterly gain of 5.11 percent, followed by discretionary thematic hedge funds and commodity strategies.

The largest hedge funds experienced the most redemptions, with investors pulling an estimated $20.6 billion from firms with $5 billion-plus. By contrast, hedge fund firms with less than $1 billion under management collectively lost $1.6 billion to net redemptions.