Hedge funds suffer $32bn of outflows in Q2

Inflation, geopolitical unrest, and the Ukraine War scared away $32 billion in investments from hedge funds in the second quarter of 2022, according to research by data provider Preqin.

The $4.1 trillion hedge fund market experienced the biggest outflows it has ever seen since the coronavirus epidemic began in the first quarter of 2020. According to Preqin, the decreases might continue as central banks hike interest rates.

To combat inflation, central banks in North America and Europe raised interest rates in September. In the meantime, a rise in U.K. government bond yields damaged British pension funds, leading some of them to ask the businesses they manage money for emergency funding. When rates increase, bond prices decline.

Global uncertainty “put significant pressure on markets and forced investors to revisit their allocations,” the report said.

Investor retention has also been hindered by the second quarter’s disappointing returns. Hedge funds with a North American focus had an 8.82 percent fall in returns, while their European counterparts fared slightly better with declines of 5.78 percent. Returns for Asian Pacific region-focused funds decreased by 4.45%. Hedge funds with a European concentration, however, accounted for the majority of the withdrawals, with $28.4 billion in the second quarter and $49.2 billion overall for the first half of 2022.

In comparison to counterparts in the United States and the Asia-Pacific (APAC) region, European performance trends over the long term trailed. Funds targeted at the U.S. and APAC generated returns of 8.55 percent and 6.90 percent during the previous five years, respectively, whereas European-focused hedge funds only generated 3.5 percent, according to the report.

Hedge funds are on course to perform well now that market stress has returned, especially those that employ techniques that trade market patterns using macroeconomic information.