Amid a growing stream of troubling economic news, hedge fund redemptions hit $42.3 billion in December 2018, which makes it the largest monthly outflow in “at least five years,” according to the Barclay Fund Flow Indicator, published recently by BarclayHedge, a division of Backstop Solutions, maker of customer relationship management (CRM) software suites for financial services firms.
The hedge fund redemptions rose “significantly in December, as nervous investors fretted about stock market volatility, global economic uncertainty, major commodity price downturns and other economic factors,” according to BarclayHedge officials.
“Data from the nearly 6,000 funds included in the BarclayHedge database showed the December activity of hedge fund investors worldwide (excluding CTAs [commodity trading advisors]) producing a fourth straight month of net redemptions, exceeding September’s $39.1 billion, at the time a five-year high,” according to the findings.
Global and regional factors were driving the results charted in December, says Sol Waksman, president of BarclayHedge, in a prepared statement. “Within specific regions, concerns like ongoing uncertainty over a Brexit agreement, and a weakening German economy, continued to pressure funds in the U.K. and Europe, while a government shutdown added to the pressure on U.S. funds in December,” Waksman says.
In a striking contrast to the U.S. and Europe, China, Hong Kong and Latin America “were the only regions to see hedge funds post net inflows in December. China/Hong Kong hedge funds posted nearly $154.4 million in inflows in December, adding 3.3 percent to assets. Latin American hedge funds attracted nearly $135.0 million — 1.3 percent of assets — in December. Meanwhile, investors drew nearly $24.3 billion from U.S. and their offshore Islands hedge funds in December, reducing total assets by 1.6 percent,” according to the BarclayHedge report.
“Hedge funds in the U.K. and their offshore Islands and Continental Europe continued to struggle with Brexit uncertainty. U.K. and U.K.-based offshore Islands hedge funds saw outflows of 1.5 percent of assets – nearly $8.6 billion in December, while hedge funds in Continental Europe experienced nearly $6.8 billion in December redemptions, trimming 0.9 percent from assets,” according to BarclayHedge.
The research showed that for all of 2018, hedge fund outflows “stood at $89.2 billion, 3.1 percent of total industry assets,” BarclayHedge officials say. By the end of last year, total hedge fund industry assets were nearly $2.88 trillion.
It’s difficult to know now all of the factors that drove this record redemption in a year that was a wild mix of great and bad economic news and statistics. I suspect that while much of the activity was irrational because of great uncertainty, there was meaning to the madness of 2018 that will define the economy for this year and 2020. For instance, I wonder how much of a role the crypto-craze played, if at all.
I also suspect that over the coming months we are likely to learn more about why the rate of redemptions spiked late last year, and more about where the money really went.