Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Retirement Income Conference
    • 2022 Managing Pension Risk & Liabilities
    • 2022 WorldPensionSummit
Breadcrumb
  1. Home
  2. ALTERNATIVES
December 24, 2018 12:00 AM

Hedge funds bit by both drop in inflows, more redemptions

Institutions are putting less in and pulling more out of challenged sector

Christine Williamson
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Micha Theiner
    Man Group CEO Luke Ellis

    Institutions are delivering a double whammy to hedge funds this year by reducing the level of new investment and increasing redemptions.

    New assets invested in hedge funds and hedge funds of funds by asset owners totaled $8.5 billion in 2018, down 13.7% compared with 2017 and down 22.8% from five years' earlier, showed Pensions & Investments' analysis of hedge fund activity reported in the newspaper as of Dec. 15.

    Net inflows to hedge funds and hedge funds of funds in 2018 were the lowest in the five-year period.

    In contrast to new investments in hedge funds and funds of funds, terminations were elevated compared with prior years, but were much smaller in terms of aggregate dollars.

    Redemptions from hedge funds rose 15.3% to $1.33 billion year-to-date through Dec. 15 compared with all of 2017 and were up 13.3% compared with five years earlier, while terminations of hedge funds of funds totaled $889 million, an increase of 298.7% for the one-year period and up 294.8% from five years ago.

    Despite the decline in overall investment in hedge funds found by P&I's analysis, sources said institutional investors, by and large, are maintaining, fine-tuning and fortifying their hedge fund portfolios as part of efforts to protect their portfolios against expected down market conditions in 2019 and beyond.

    By way of fine-tuning, asset owners are both hiring new managers and culling those hedge funds that no longer fit within their portfolio structure or are underperforming. "The very big picture shows that a lot of big public pension funds are allocating and reallocating money to the best managers in a strategy while others are looking to hedge funds to diversify their portfolios and are hiring new managers," said Donald A. Steinbrugge, CEO of Agecroft Partners LLC, a Richmond, Va.-based consulting and third-party marketing firm specializing in hedge funds and other alternative investments.

    Other observers stressed that asset owners are looking to hedge funds to provide downside protection for their whole portfolio as volatility rises across global markets.

    "There's a big appetite among asset owners for risk-controlled strategies in public markets. They are re-evaluating their equity exposure and deciding what to do in a market that will have more volatility and less certainty," said John P. McCormick, president and CEO of Blackstone Alternative Asset Management, New York.

    BAAM managed $80 billion in hedge funds of funds, co-investments, customized separate accounts and other alternative investment approaches as of Sept. 30.

    Direct investments in hedge funds were down 6.1% to $8.197 billion this year compared to 2017 but were up 12.2% from 2014.

    Investment in hedge funds of funds totaled just $280 million from two pension funds, down 74.5% from 2017 and down 92.3% from 2014, P&I's analysis showed.

    Actual annual investment and redemption in hedge funds and funds of funds by institutional investors might be larger because many institutional investors do not disclose their investment activities.

    Among the asset owners that continued to build their hedge fund portfolios throughout the year:



    • The $57 billion Pennsylvania Public School Employees' Retirement System, Harrisburg, invested a total of $1 billion in five hedge funds and $200 million in a hedge fund of funds.

    • The $24.5 billion San Francisco City & County Employees' Retirement System invested a total of $895 million in nine hedge fund managers through a customized separate account jointly managed by internal investment staff and Blackstone's alternative asset management division. SFERS has earmarked $3 billion for direct investment in hedge funds through the limited partnership vehicle set up with Blackstone.

    • As part of moving to direct investment in hedge funds, the $29.1 billion Texas Municipal Retirement System, Austin, redeemed $610 million from a customized hedge fund-of-funds portfolio and deployed $500 million of the proceeds with investments in three hedge funds.

    P&I's analysis found fewer large terminations than large hires, led the by $12.3 billion Kentucky Retirement Systems, Frankfort, which terminated six hedge fund managers with total assets of $216 million as part of its well-publicized 2016 decision to restructure its hedge fund portfolio.

    The $51.8 billion Teachers' Retirement System of Illinois has been active this year in terminating hedge fund managers whose strategies no longer were performing optimally within the fund's $2.7 billion hedge fund portfolio.

    The fund terminated two managers running a total of $526 million, the largest total termination of hedge fund managers in P&I's universe of asset owners.

    TRS investment officers, who have investment discretion, also added new hedge fund managers, allocating a total of $930 million to five new managers.

    As for future hedge fund activity by institutional and retail investors, sources said the extremely tough investment environment hedge fund managers have endured in 2018 likely will result in negative returns and net redemptions as the year ends.

    The HFRI Fund Weighted Composite index returned of 1.45% in the nine months ended Sept. 30, compared to 5.7% for the nine months ended Sept. 30, 2017. But conditions worsened as sharp volatility hit global markets in October, resulting in a decline of 3.12% for the index in the month. Combined with a dip of 0.16% in November, the index was down 2% year-to-date through Nov. 30. The HFRI indexes are managed by Hedge Fund Research Inc.

    Modest net redemptions are expected to continue in 2019, said sources, including Luke Ellis, CEO of Man Group PLC, London, who noted that rolling 12-month returns are reasonably predictive of hedge fund industry flows.

    "The environment over the last two to three months increases the chances of net redemptions from all investors in the first and second quarter of 2019. If performance doesn't improve, redemptions may continue into the third and fourth quarters," Mr. Ellis said.

    Related Articles
    Texas Municipal earmarks nearly $1.4 billion for alternatives
    San Francisco allocates $551 million to 8 managers
    PennPSERS commits $1.5 billion to 6 alts funds
    Fourth quarter pulls down hedge funds for year
    Hedge funds assets record first losing quarter in 10 on market volatility, rede…
    Agecroft Partners turns on mic for webinar series
    Recommended for You
    Star Mountain names former Thoma Bravo credit head as managing director
    Partners Group names head of private equity for Japan
    H.I.G. Capital names head of U.S. private equity business development

    Reader Poll

    August 10, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Gaining Momentum: Where Next for Trend-Following?
    How Has 2022's Carnage Reshaped Global Stock and Bond Markets?
    Can Sustainable Labeling of Financial Products Prevent Greenwashing?
    Hedge Funds 2.0: Back to the future
    Is there a mid-cap gap in your DC plan?
    Why pursue direct lending in the core middle market?
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    August 1, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Retirement Income Conference
      • 2022 Managing Pension Risk & Liabilities
      • 2022 WorldPensionSummit