The hedge fund industry experienced a second straight month of net outflows in December with nearly $29.0 billion in redemptions, up from November’s $4.7 billion in outflows.
December’s redemptions represented 0.9% of industry assets, according to the Barclay Fund Flow Indicator published by BarclayHedge, a division of Backstop Solutions.
A $34.7 billion December trading profit boosted industry assets to more than $3.19 trillion as the year closed, up from $3.16 trillion a month earlier.
December’s redemptions were driven largely by a variety of troubling economic signs in the U.S. over the fall months, coupled with China’s economic slowdown. The ongoing trade dispute between the two countries contributed to some of the economic indicators, as well as to investors’ concerns.
December data from 6,000 funds (excluding CTAs) in the BarclayHedge database showed the scale of U.S. redemptions making December’s global outcome inevitable. Investors took more than $38.5 billion from U.S. hedge funds in December. Another $1.1 billion in outflows from funds in China and Hong Kong added to the global outflow total.
“Investors saw the worst U.S. manufacturing month since the Great Recession coupled with a downturn in U.S. service sector activity. A continuing decline in consumer confidence over the fall months added to recession concerns,” said Sol Waksman, president of BarclayHedge. “Meanwhile, reports of China’s economic growth sinking to a 27-year low coupled with news that Hong Kong had entered a recession added to investors’ jitters.”
Over the 12 months in 2019, the hedge fund industry experienced $109.6 billion in redemptions, 3.8% of assets. A $261.6 billion trading profit in 2019 brought total industry assets to more than $3.19 trillion as December closed, up from nearly $2.88 trillion a year earlier.
While most hedge fund sectors experienced net redemptions over the 12 months ending Dec. 31, a few brought in new assets. Sectors experiencing 12-month inflows included Macro funds which took in $26.9 billion, 14.5% of assets, Event Driven funds which added $26.5 billion, 19.3% of assets, and Emerging Market – Latin America funds with $1.9 billion in inflows, 18.1% of assets.
Over the 12 months, equity- and fixed-income-focused hedge fund sectors set the redemption pace reflecting uncertainty in their underlying markets. Sectors with the largest redemptions over the year included Equity Long/Short funds which shed $42.0 billion, 19.5% of assets, Equity Long Bias funds with $32.7 billion in redemptions, 10.1% of assets, and Fixed Income funds which saw $21.9 billion in outflows, 3.9% of assets.
The managed futures industry had a better experience in December as CTAs posted $1.2 billion in inflows, 0.4% of industry assets. A $500 million trading profit in December brought total CTA industry assets to $318.4 billion as December ended, up from $310.2 billion at the end of November.
“CTAs’ performance started to pick up in the year’s final months based on strong global equity markets and rising government bond yields,” said Waksman. “With the improved performance came additional investor assets.”
December’s inflows were driven by CTAs in the U.S. and its offshore islands which added $3.9 billion, 1.9% of assets.
Elsewhere in the world, redemptions were the standard in December, led by CTAs in Continental Europe which experienced $1.6 billion in outflows, 4.5% of assets, and funds in the U.K. and its offshore islands which saw $983.0 million in redemptions, 1.7% of assets.
Over the course of 2019, CTA funds experienced $15.9 billion in outflows, 4.5% of industry assets. A $13.1 billion trading profit over the 12-month period contributed to the managed futures industry’s $318.4 billion in total assets at the end of December, down from $355.1 billion a year earlier.
The monthly Barclay Fund Flow Indicator, published by BarclayHedge, can be found here.