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August Was Another Challenging Month For Hedge Funds Amid Losses In Multi-Strategy, Equities

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Equities became one of the worst hedge fund strategies in August after being one of the strongest in the overall returns in July. Equities was one of only two strategies in the red last month at -0.8% — with multi-strategy being the only worse strategy at -1.4% for August.

Given that the August performance was so mixed, it should be no surprise to see that only 56.5% of hedge funds administered by Citco generated positive returns, compared to 69.9% in July.

Multi-strategy leads in losses

Hedge funds administered by Citco posted an overall August return of -0.6% as the losses by equities and multi-strategy funds more than offset the gains from all the other strategies. It marked a reversal from July’s strong start to the third quarter with a return of 3%.

In August, the strongest strategy among hedge funds administered by Citco was event-driven, which returned 3.5% on a weighted average basis, followed by commodities at 1.8% and global macro at 1.6%.

On a median return basis, event-driven was again the best-performing strategy at 2.3%, followed by global macro at 0.9%. However, other strategies displayed wider dispersions. For example, multi-strategy funds had the worst weighted-average performance at -1.4%, but the strategy was in the green on a median basis at 0.4%.

Equities was the worst-performing strategy on a median basis at -0.1%. Other wide dispersions were noted in global macro, with its median return of 0.9% versus its weighted average return of 1.6%, and commodities, with its median return of 0.2% versus its weighted average return of 1.8%.

The largest funds were the weakest in August

The largest hedge funds performed worse than their smaller peers. Funds with more than $3 billion in assets under administration generated a weighted average return of -1.9%, while funds with less than $200 million under administrated were down only 0.2%.

The gap between the overall weighted average return of -0.6% and the median return of 0.2% also reveals that larger funds were the worst performers. Funds with over $3 billion generated a median return of 0.1%, while funds with less than $200 million were flat on a median basis.

Funds with $1 billion to $3 billion under administration were the best performers, returning 1% on a weighted average basis and 0.6% on a median basis.

Capital flows

August tends to be a comparably quiet month for capital activity, and this August was no different. Citco reported net redemptions of $500 million across its hedge funds — the result of $6.4 billion in redemptions and $5.9 billion in inflows.

In line with their weakest performance, the largest funds with over $10 billion in assets under administration recorded the highest net redemptions at $1.3 billion. Funds with $5 billion to $10 billion were in second place with marginal net outflows of $100 million. Interestingly, funds with $1 billion to $5 billion recorded net inflows of $900 million.

Citco observed mixed capital activities according to strategy, with marginal inflows or outflows, except for multi-strategy and equities funds. Although they were the worst performers in August, multi-strategy hedge funds were the most popular, racking up $700 million in net inflows. On the other hand, equities hedge funds recorded $1.5 billion in net outflows.

Regionally, funds focused on the Americas captured $300 million in net inflows for August, while Asian and European funds recorded $200 million and $600 million in net outflows, respectively. For September, more than $10 billion in redemptions were planned for Americas-focused funds, with an additional $6 billion planned for further out. Smaller outflows were planned for European and Asian funds in September and beyond.

Looking ahead, Citco observed $14.2 billion in net redemptions, including $15.7 billion in outflows and $1.5 billion in inflows, planned for the end of the third quarter. The firm saw an additional $10.2 billion in outflows beyond. The vast majority of those redemptions were seen in multi-strategy funds at around $5 billion, followed by equities funds at around $3 billion.

Michelle Jones contributed to this report.

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