Hedge Funds See Biggest Redemptions Since ’09 as Returns Lag

Updated on
  • July outflow tallied at $25.2 billion by tracker eVestment
  • Annual flows could be negative for only third time on record

Hedge Funds See Biggest Redemptions Since 2009

For hedge funds, the news is getting worse.

Investors pulled an estimated $25.2 billion from hedge funds last month, the biggest monthly redemption since February 2009, according to an eVestment report.

The monthly withdrawals were the second straight for the beleaguered industry, which saw $23.5 billion pulled in June. They bring total outflows this year to $55.9 billion, driven by “mediocre” performance after a number of funds lost money last year, according to Wednesday’s report.

“Unless these pressures recede, 2016 will be the third year on record with net annual outflows, and the first since the outflows in 2008 and 2009 -- a result of the global financial crisis,” eVestment said.

Hedge funds, which charge some of the highest fees in the money-management business, have faced mounting criticism from clients over steep costs and performance that mostly hasn’t kept pace with stock markets since the financial crisis. The 10 funds with the highest redemptions in July lost an average of 4.1 percent in the first seven months of this year. Industrywide, funds returned an average of 1.2 percent this year through July, according to data compiled by Bloomberg, compared with about 7.6 percent for the S&P 500 Index.

Last month’s withdrawal was the highest since a net $28.2 billion was redeemed in February 2009. The industry manages more than $3 trillion, according to eVestment.

The largest outflows in July came from the credit and multiasset funds, about $10 billion from each category. The last time multistrategy funds saw monthly withdrawals near this level was in April 2012, during Europe’s sovereign-debt crisis. Emerging-market funds saw the highest withdrawals in 17 months, according to the report.

On the flip side, positive returns have helped individual funds attract inflows. The 10 largest allocations over the past two months have gone to funds that are up an average of almost 7 percent this year and posted gains in 2015. Commodity funds have consistently pulled in new money this year, bringing inflows to $10.3 billion over the last 14 months.