Hedge fund net outflows reached $14 billion in October

In October, investors kept up a trend that persisted into 2022 by selling their hedge fund holdings. According to a recent study from Nasdaq's eVestment, net withdrawals from hedge funds totaled $14 billion in the month, while positive investment gains reduced the total loss of assets to only $12.4 billion.

The only class of hedge funds to have net inflows in October were those employing a market-neutral approach.

Long-short equity strategy funds, which led all hedge fund categories in outflows of $5.38 billion, were the poorest performers for the month. They were followed by macro strategy funds, which had outflows of $3.15 billion, and relative value credit, which saw outflows of $1.6 billion.

The paper said: "We have identified the challenges facing credit strategies as being somewhat structural, in that during at least the previous two years there has been a lot of positive interest in private debt funds, perhaps at the expense of hedge fund structures."

The year has been particularly difficult for long-short equities, macro strategy, and directional and relative value credit strategies. In contrast to macro strategies' $26.07 billion and directional/relative value credit strategies' $28.9 billion, long-short funds have seen a total of $32.3 billion redeemed so far in 2022.

In contrast to macro strategies, which are weak because of the overall economy, the research observes that long-short equity strategies see money leaving and little money coming in. According to the research, "a significantly bigger share of money traveling in both directions" is the cause of the net outflows for macro strategies.

The fifth month in a row that hedge funds withdrew money was October. According to eVestment data, they dropped to an estimated $3.41 trillion after the decline in October. In 2019, 2020, and 2021, the asset class boasted average annual returns of 9.29%, which contributed to the significant amount of assets under management. According to eVestment, hedge funds have recorded average returns of -7.55% this year.

The total outflow of funds will continue until the end of the year if preceding years give any indication. Year-end net outflows have a tendency to be greater and outsized compared to other months, according to historical statistics for December.