The Covid-19 pandemic has affected the alternative assets industry in varying degrees.
According to London-headquartered Preqin, a provider of data on investments in alternative assets, hedge fund industry’s assets under management (AUM) have declined by 9.4% from Q4-2019, to reach $3.31 trillion at the end of March 2020. “This is the first time AUM has fallen below $3.5 trillion since Q4-2018,” says Preqin.
Poor performance accounted for the majority – $296.1 billion – of lost assets, with investor redemptions totaling $47.7 billion. “This brings hedge funds to eight consecutive quarters of outflows,” Preqin adds.
Within the variety of hedge funds, almost all top-level strategies suffered outflows in Q1-2020. Macro strategies and commodity trading advisor (CTAs) – which use futures’ contracts across a wide spectrum of financial products – recorded the largest capital withdrawals, at $10.8 billion and $10.7 billion respectively.
While event driven strategies followed closely behind, as investor redemptions totaled $8.3 billion for the quarter following a poor return of -16.72%. The strategy lost just over a fifth – 21% – of all assets as AUM dropped to $152.7 billion. Only niche strategies recorded inflows, with 54% of such funds experiencing inflows, though at $0.3 billion these gains were incremental.
In terms of geography, Preqin highlights that hedge fund managers based in the ‘rest of the world’ region endured a very tough first quarter in 2020. Following significant volatility and poor performance, investors withdrew $12.6 billion. And, subsequently, AUM dropped to $20.8 billion – marking a 44% fall since the end of 2019. However, North America was the only top-level region to record net inflows, at $25.4 billion.
Further, Preqin highlighted that the data showed that funds that perform well are more likely to receive investor inflows. Among hedge funds that returned upwards of 5% or more in H2-2019, 35% recorded inflows in Q1-2020. “This trend is similar over a three-year time frame,” Preqin added. “Any funds able to navigate the Covid-19-induced market disruption to produce a positive return are likely to build a strong track record that may help secure future investments.”