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Hedge Funds See $2.9 Billion In Outflows In July, Broadly Underperform S&P YTD; Redemption Requests Imminent
First mutual funds, then ETFs, now Hedge Funds. Bloomberg reports that the smartest of the smart money have posted an outflow of $2.9 billion in July, or 0.2% of total assets: the most since January, based on TrimTabs research. "July's number follows an outflow of $2.7 billion in June. The industry has dropped 4 percent since April 2010, according to Trimtabs, which attributed the decline mostly to negative returns in May and June. Flows have now been negative five of the last eight months (see chart, this page), the worst eight-month stretch since the September 2008 to April 2009 period." And for those wondering why hedge funds are counting down each of the remaining 17 trading days with increasing dread, is the following reason from TrimTabs: "Redemptions should resume in September; historically one of the worst months for hedge fund flows. For the year, flows toward hedge funds stand at $1 billion, following redemptions of $172 billion in 2009 and $150 billion in 2008. We believe it is safe to assume this “lost” $320 billion will not come back to the industry any time soon." As is now well known, the July rally was broadly missed by hedge funds which are now underperforming the general market according to the Bloomberg BAIF Hedge Fund Index. The only open question is how many managed to lever into the rally of the first week of September and pull the cord at the very top.
Trimtabs said that hedge funds appear to have missed out on market gains in the S&P 500 Index during July because of conservative positions. The S&P 500 surged 6.9 percent during the month, while hedge funds gained only 1.93 percent. A survey by Trimtabs shows hedge fund managers remain bearish on equities. That may reflect the deteriorating economic landscape and the reluctance of hedge funds to take on risk having only recently recovered many of the losses that occurred in 2008.
It also appears that the hedge fund industry is not at all immune from the same size-scaling issues prevalent everywhere else in finance:
The industry continues to show signs of consolidation. The funds with more than $5 billion in assets have recorded net inflows of $7.7 billion this year, while funds with less than $200 million have seen net losses of $18.3 billion, equivalent to 15.7 percent of assets.
Yet the most damning piece of data is the simplest one: the performance of the hedge fund universe as a whole, which is not only negative YTD, meaning most highwater marks are in major danger of not getting surpassed, but that hedge funds are broadly underperforming the S&P itself, which infuriates LPs more than charges of child porn, embezzlement, and felony theft leveled as the portfolio manager.
(Global Hedge Fund Returns per Bloomberg)
Another observation which validates what we have been saying is that Long-Short strategies are among the worst performers of the year, losing 4.09% YTD, as record implied correlations make traditional hedging impossible. The best strategies of the year: Mortgage-backed arbitrage, Convertible Arbitrage, and Asset backed arbitrage.
There are 17 trading days left in September, and the hedge fund community will be dreading each and every one of them, keeping a close eye on the fax machine and the hated redemption notice by end of trading on September 30.
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So, will the chase for performance be to pump the market, or to dump the market?
Redemptions Bitchez!
Dump. The market is correlated .99:1. More $ leaving small HF than large, net.
Bye bye Hamptons, Hello Jersey, Hedgies. The ladies may not look as nice but they are cheaper.
Mostly they aren't spitters either!
How can anyone pay a pro to do what any goober could do for himself with ETF's? How could any one still be in equities not related to anything but memories of how it used to be. Buy gold/silver and be done with it. Love on your family...
The only thing to pay for would be allocation guidance....lets see if ur 80 and have 100 % in stocks I would re-balance that portfolio. Does that warrant 1% a year? I see client after client that is overweighted in equities. Anyone who thinks the next down leg isn't going to hurt the retail investor is high
But you don't understand !!! They got "proprietary" models which are not available to mere mortals !!! The fact that you can purchase such things for only 2% should make you jump from joy, and not bitch and moan about the fees!!!
WTF? This is some serious waste.
I'll guarantee you there will be some MASSIVE redemption requests this month and next. Why stay invested in stocks if you have to pay more taxes on meager capital gains. There is no incentive to stay invested OR keep your dollars inside the United States. Thus capital will go where it can multiply at the fastest rate and in whatever currency seems to be stable enough to profit those investors. Capital Flight Airlines now boarding at Gate A20.....Just as Tyler wrote about back in April.
Beans 'n' weenies more important than stocks 'n' bonds.
It's beginning to hit the fan.
Nice article thanks.
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