For 2022, the hedge fund trade skilled the largest internet asset outflow in six years as traders steered away from energetic managers towards a backdrop of exceptionally risky and depreciating markets.
The capital flight of $55.4B was the largest because the $70.1B mark in 2016, in accordance with a current Hedge Fund Research report, which collected information between 1991-2022. Going again additional, although, internet outflows reached a file $154.5B in 2008, throughout the peak of the Great Recession, earlier than easing considerably to $131.2B in 2009.
Net asset flows have been notably constructive in 2021 ($15.12B), a yr when a raft of memes quipped “stocks only go up.” Indeed, the S&P 500 index (SP500) shot up 30% that yr, solely to be adopted by 2022’s worst inventory market stoop because the Great Recession. Volatility wreaked havoc on the hedge fund trade final yr, as investor sentiment was broken in the face of many central banks aggressively ratcheting up rates of interest to curb inflation, in addition to elevated recession fears, Russia’s invasion of Ukraine and different geopolitical tensions.
The report highlighted that “equity hedge” was among the many worst performing hedge fund methods throughout the yr, shedding $112.5B, as market members yanked $40.4B from funds that purchase and promote shares. By distinction, funds that attempt to revenue from broad market swings stemming from macroeconomic occasions fared the perfect, gaining $55.5B, though traders nonetheless pulled out $15.0B. “Event-driven” was the one kind of technique – which focuses on deep worth and credit score positions – that attracted investor cash, some $4.3B.
Overall, the dimensions of the worldwide hedge fund trade expanded to $3.83T, a quarterly rise of $44B, HFR stated.
“Strategies which have demonstrated their potential to navigate the present excessive market volatility are prone to entice capital,” stated HFR President Kenneth J. Heinz.
And with 2023 underway, the uncertainty that surrounded final yr’s macro and geopolitical drivers “has accelerated into 1H23 with increased focus on the impact of higher interest rates, generational inflation and expectations for global economic weakening,” Heinz added. “Leading funds continue to position for a fluid trading environment and accelerated cycles of volatility, with increased potential for destabilizing dislocations across all asset types.”
While traders final yr largely averted placing cash into energetic administration, a gauge for hedge fund efficiency indicated that they carried out considerably higher than the inventory market (SP500). The PivotalPath Hedge Fund Composite index solely misplaced 0.8% in 2022 vs. S&P 500’s 20% drop and Nasdaq’s (COMP.IND) practically 34% plunge. Pivotal Path tracks greater than 2,500 institutionally related hedge funds, spanning greater than $2.5T of trade property.
Seeking Alpha contributor Mott Capital Management final week argued “it’s premature to say a new bull market is here,” because the Federal Reserve’s battle towards inflation rumbles on. On the opposite facet of the fence, see why Carlyle Group Co-Founder David Rubenstein thinks it’s a superb time to take a position.