Hedge Funds In The Red For Q1, But Wide Dispersion Flashed Green For Commodities, Red For Equities

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After a strong 2021, the first quarter saw a significant drop hedge fund performance, However, the first quarter was also marked by a big margin as per the strategy. The best performing strategy returned 12.09%, while the weakest strategy was down 6.76%.

The first quarter was extremely volatile, supported by very few assets, which is why there was such a significant dispersion in returns depending on the strategy. Geopolitical events, particularly the war in Ukraine, rising inflation and macro uncertainty led to continued volatility in the market during the quarter.

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Skyrocketing commodity prices gave hedge funds rising returns to invest in commodities, while broad-based uncertainties favored event-driven and macro hedge fund strategies.

Strategy wise hedge fund performance

The hedge fund administered by Citco generated a weighted average return of -3.23% and an average return of -0.83%. Equities fell during the first quarter, so it should come as no surprise that hedge funds using equity strategies performed the worst, with an average return of -2.75% on a weighted average basis with returns of -6.76%.

Widespread weakness in equity markets resulted in losses for long-biased hedge funds in bear markets for the S&P 500 and Nasdaq and resulted in an even bigger drop of 14.8%. Long/short equity hedge funds outperformed slightly but were still in the red with -5.4% returns.

Multi-strategy and fixed-income arbitrage funds were also in the red at -2.14% and -1.28% respectively. On the opposite end of the spectrum, commodity hedge funds led with a return of 12.09%, followed by event-driven funds at 9.16%.

According to Citco’s Declan Quilligan, all size categories delivered negative returns for the first quarter, but the largest funds posted the biggest declines. Citco-administered funds with more than $3 billion in assets under administration declined 3.71% on a weighted average basis. Funds between $1 billion and $3 billion gave a return of -3.25%, while those with $500 million to $1 billion gave a return of -3.37%.

due to external factors

Quilligan observed outliers in nearly all hedge fund categories, resulting in a significant difference between average and weighted-average performance. He said poor performance by large funds across different size categories added to the divergence.

About 40% of hedge funds administered by Citco were in the green for the first quarter, compared to about 61% in the fourth quarter. The spread of returns between the top 90th percentile and the bottom 10th percentile of the hedge fund stood at 25.71% in the first quarter, compared to 17.3% in the fourth quarter and 12.49% in the third quarter.

The largest spreads among hedge fund strategies tracked by Citco were seen in event-driven funds, which reported a weighted average return of 9.16% and an average return of -0.24%. Another important area of ​​spread, depending on the strategy, came in commodities, with a weighted average return of 12.09% and an average return of 2.83%.

The spread among commodity hedge funds was particularly interesting in light of the strong performance of most commodities during the first quarter, which typically brought similar returns among hedge funds.

investor flow

The hedge fund administered by Citco continued the trend of net inflows from 2021, when investor inflows exceeded outflows every quarter. For first quarter, hedge funds enjoyed $52.5 billion in inflows and $38.9 billion in redemptions, resulting in a net inflow of $13.6 billion. The first quarter inflows were more than double the net inflows recorded in the fourth quarter.

Citco-administered funds generally saw positive net inflows in the intra-quarter months last year, but generally saw some net outflows in the last month of each quarter. They also observed the same trend in the first quarter of January and February, which recorded positive net inflows, while outflows in March saw a slight offset.

Funds with less than $1 billion in assets under administration recorded net inflows of $200 million, while those with $1 billion to $5 billion recorded $2.6 billion in net inflows. Hedge funds with assets of $5 billion to $10 billion attracted $4.5 billion in net inflows, while those with more than $10 billion drew in $6.2 billion during the first quarter.

Citco also continued to drive the popularity of hybrid capital funds during the first quarter. The category attracted net inflows of $8.2 billion during the quarter, making it the most popular strategy ever. Multi-strategy funds came second with net inflows of $4.7 billion. The rest of the strategies had either modest net inflows or redemptions.

By region, US-focused hedge funds gained $7.3 billion in the first quarter, followed by Europe with $4.4 billion in net inflows and Asia-focused hedge funds with $1.9 billion. According to Citco, $13.5 billion is set for inflows from hedge funds in the second quarter, with an additional $6.3 billion set for outflows later in the year.

trading volume between hedge funds

The Citco-administered hedge fund continued to break records at Treasuries, pushing volumes to another peak during the first quarter. The fund set a monthly record high in March, ending the first quarter at 102,701, slightly higher than fourth-quarter volume.

Business volume also continued to grow during the first quarter as instability Spiked, recording a sudden jump in the VIX.

Michelle Jones contributed to this report.

Credit: www.forbes.com /

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