The good news didn’t last long. 

Assets under management for hedge funds, which had reached a record $3.2 trillion in 2015, slid down to $2.99 trillion last month, according to a report by eVestment, a global research consultancy that has been tracking statistics related to the hedge fund industry since 2009. The expected rash of redemptions due to global macroeconomic uncertainty ballooned to a record $20.7 billion during the last quarter. 

And that might not be the end of it. 

“Since redemptions tend to be filed at least one month in advance, asset flows related to Britain’s Brexit vote at the end of June are yet to be tallied,” the consultancy wrote in its release announcing the report. 

This was the third straight quarter of negative growth for the hedge fund industry. That is only one quarter away from the record of four consecutive quarters of negative growth set in 2009, right after the financial crisis. 

In an era of negative interest rates for government bonds, equity markets and commodities have become popular with investors looking to multiply their returns. The outflow trends provide a clue to market directions and the prevailing set of economic circumstances in the macro universe. Investors have redeemed $7 billion since the beginning of the year from the ten best performers of 2016 and pumped $4.5 billion into the ten worst performers of 2016.  

Commodity-focused funds gained $3.32 billion during the second quarter, the tenth such month of increased investment for that category. On the other hand, market turmoil since the beginning of the year found echoes in the performance of equity-focused funds. Long/Short Equity funds dropped 6.13% during the first quarter and have lost 8.27% in value since the beginning of this year. (See also: The Top Three Stocks Hedge Funds Bought In Q1, 2016). According to the Hedge Fund Research Inc., equity hedge funds have lost 5% in the last one year. However, gains made during rallies in 2014 and 2015 have ensured that they have a net positive return of 3.06% in the last three years.  

Not surprisingly, Europe- and Asia-focused funds witnessed redemption pressure. Brexit, of course, was a major factor in investors seeking to pull out their money from Europe-focused funds. However, the rebalancing of China’s economy from manufacturing towards services also took its toll on fortunes for Asia-focused funds, which saw negative investor flows for the seventh straight month.     

Event-driven hedge funds, which profit from market events such as mergers and acquisitions, continued their downward ascent with outflows of $2.97 billion in June, bringing their yearly outflow tally to $27.06 billion. With 20 percent returns in 2009, event driven funds had a record year immediately after the financial crisis as distressed companies tapped the markets for debt and to avoid bankruptcy. However their returns have petered out as the global economy emerged from the debt cycle. In 2010, event-driven hedge funds recorded just 1.84% growth in the first six months. According to HFRI, they have recorded negative growth of 3.85% in the last one year. 

 

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