Hedge funds, suffering for years from capital outflows, in February had their best investment performance since April. Alas, the global outflows continued in the second month of 2024. February typically has seen inflows.
The February 2023 net outflow was the first since 2009, and 2024’s February marked the second time, according to a Nasdaq eVestment report. This February, investors pulled out a net $780 million. On the plus side, the 2.2% return in February 2024 offset the redemptions. As a result, the hedge industry saw its assets under management expand by $74 billion to a $3.59 trillion total.
The second month of the year has long been a harbinger in terms of flows. “Historically, February’s data tends to reveal any notable early year inflows,” the report noted. Then it asked: “Does this mean the industry is headed for another triple-digit net outflow in 2024?” In 2023, $104.8 billion left the hedge fund market, and in 2022, $112.2 billion.
The report’s answer was that maybe February 2024 was better than it first appeared. For one thing, most hedge funds were net positive, but the whole picture was overshadowed by the redemptions from a handful of big funds, notably in the macro area. Macro funds focus on fixed income and the influence of interest rates. This strategy’s performance has lagged the rest of the industry, the report contended.
“There are large and isolated redemptions taking place within the macro universe,” the report stated. “These net outflows are skewing the picture for macro funds” and others.
On the other hand, multi-strategy and credit funds were back in positive flow territory in February. The industry’s largest category by assets, long/short equity, also had inflows for a change, and the report commented that the “fund flows looked pretty decent for the first time in a long time.”
Managed futures, which deal with commodities, had a good February in performance terms, up 4.2%. But the strategy continued to suffer from outflows (losing $760 million), perhaps due to unpleasant memories of its negative (down almost 1%) returns in 2023. Going forward, the report remarked, “Maybe the strong performance to start to 2024 will change that, but there is no sign of this yet in the data.”
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Tags: Credit, Hedge Funds, inflows, long/short, Managed Futures, multi-strategy, Nasdaq eVestment, outflows, Pandemic
FAQs
The 2 and 20 is a hedge fund compensation structure consisting of a management fee and a performance fee. 2% represents a management fee which is applied to the total assets under management. A 20% performance fee is charged on the profits that the hedge fund generates, beyond a specified minimum threshold.
Can you take money out of a hedge fund? ›
Unlike mutual funds where you can elect to sell your shares on any given day, hedge funds typically limit opportunities to redeem, or cash in, your shares (e.g., monthly, quarterly or annually), and often impose a “lock-up” period of one year or more, during which you cannot cash in your shares.
Do hedge funds have good returns? ›
A fixed-income hedge fund strategy gives investors solid returns, with minimal monthly volatility and aims for capital preservation; it takes both long and short positions in fixed-income securities.
What is the withdrawal period for hedge funds? ›
Hedge fund lock-ups are typically 30-90 days, giving the hedge fund manager time to exit investments without driving prices against their overall portfolio.
Should I put my money in a hedge fund? ›
Hedge funds offer the potential for high returns and diversification benefits, but they also come at the cost of higher fees and less regulatory oversight. As with any investment, you should do your own research to determine whether they make sense for your portfolio.
How much money do you need to be considered a hedge fund? ›
There's no real prescribed target, but you should aim to have at least $5 million in AUM to be successful, while $20 million will make you noticeable to investors. Having $100 million will get you noticed by institutional investors.
Can you sue a hedge fund for losing money? ›
But, if you think the loss is a result of wrongdoing, legal actions against a fund are a legitimate option. Regulatory bodies are under obligation to investigate the fund and the manager in question. Depending on the extent of the losses, investors may lose all their money, or recover a portion of their investment.
What is one disadvantage of a hedge fund? ›
While hedge funds can offer the potential for high returns, they come with a significant downside: high fees and expenses. These fees can eat into investment returns and reduce the overall profit margin.
What is the lock-up period for hedge funds? ›
A typical hedge fund lock-up usually lasts about two years. The reason for this long lock-up period is that underlying investments of hedge funds are often illiquid. If investors could pull out early, fund managers (and the other investors) would take a big hit when delivering the cash to exiting investors.
What hedge fund has the highest returns ever? ›
One of the most profitable hedge funds of all times, Citadel generated $16 billion in profits for its investors in 2022, and earned $65.9 billion in net gains since 1990, making it the top-earning hedge fund ever.
Kenneth Griffin
Citadel has now made $74 billion for investors since its inception in 1990, more than any other hedge fund firm.
Do hedge funds do well in a recession? ›
With the threat of recession growing, we examined hedge fund performance during recessionary periods over the last three decades, finding that they have demonstrably outperformed when stocks have declined.
Will hedge funds exist in 10 years? ›
Overall, the consensus is that hedge funds will continue to grow but will adapt to lower fees, greater use of technology, and increased access to retail investors.
What happens when a hedge fund shuts down? ›
For investors, credit and trading counterparties, a hedge fund failure constitutes a loss on their investments and credit exposures, whereas for the hedge fund manager, who has not committed own capital to the fund and does not manage other funds, it represents a failed asset management venture that culminates in the ...
Why do hedge funds have a bad reputation? ›
Some of the controversies that became well-known are: High levels of risk, and use of leverage. To amplify their returns hedge funds often use leverage strategy. This borrowed money can bring major returns but can also raise the concern of a systemic risk.
How much net worth do you need to have to be in a hedge fund? ›
What are the typical requirements for hedge fund investors?
- Accredited investors with a net worth of at least $1 million (excluding primary residence) or annual income of at least $200,000 ($300,000 for married couples)
- Qualified purchasers with at least $5 million in investable assets.
The term “2000 investor limit” refers to a restriction imposed by the United States Securities and Exchange Commission (SEC) on certain privately held companies that wish to avoid registration and reporting requirements under the Securities Exchange Act of 1934.
What is the average management fee for a hedge fund? ›
This is typical for traditional hedge funds, as it is very common to employ a two- and 20-fee structure. Management fees are traditionally two percent of the fund's net asset value, while the performance fee is 20 percent of the fund's profits.
Can hedge funds take both long and short positions? ›
Long-short equity is a liquid alternative strategy popular with hedge funds, many of which employ a market-neutral strategy, in which dollar amounts of both long and short positions are equal.
