Hedge funds started 2024 on the front foot with the majority of strategies delivering positive performance, building on 2023’s double-digit returns.
Latest data from the Citco group of companies (Citco) – the global alternative investment asset servicer with over $1.8 trillion in assets under administration – reveals that funds administered by Citco achieved an overall weighted average return of 1.4% in the first month of 2024, with Equities being the top performer.
Highlights:
- Hedge funds top performers (by weighted average return)
- Equity funds – 1.8%
- Global Macro – 1.6%
- Multi-Strategy – 1.2%
- Fixed Income Arbitrage – 1.1%
- Commodities – 0.8%
- Event Driven funds recorded negative weight average return of -2.3%
- The rate of return spread was consistent, at 8.6%
- Net capital inflows for Fund of Funds, Arbitrage and Multi-Strategy portfolios
- Equities strategies saw the biggest new outflows of $0.7B
- Funds in Europe had the highest net inflows in January, at $2.1B, followed by funds in the Americas at $0.6B. Funds in Asia saw net outflows of $0.2B
Executive Summary
Performance
Hedge funds started 2024 on the front foot with the majority of strategies delivering positive performance, building on 2023’s double-digit returns.
Funds administered by the Citco group of companies (Citco) delivered an overall weighted average return of 1.4%, with Equities the top performer.
Equity funds achieved a weighted average return of 1.8% in January, just ahead of Global Macro strategies at 1.6%. Multi-Strategy funds were next at 1.2%, followed by Fixed Income Arbitrage at 1.1% and Commodities at 0.8%.
Event Driven funds were the only strategy type in negative territory, with a weighted average return of -2.3%.
On a fund size basis, nearly all categories had a positive month. The largest funds with more than $3B of assets under administration (AUA) had the strongest performance in January, with a weighted average return of 1.8%, followed by the $1B-$3B AUA grouping at 1.5%.
Funds with between $500M-$1B of AUA and between $200M-$500M of AUA were next, at 0.3% and 0.2% respectively, while the smallest funds with less than $200M were the only category to have negative returns in January, with a weighted average return of -0.1%.
There was a drop in the number of funds achieving a positive return overall in January to 64.5%, down from 79.2% the previous month.
The rate of return spread – the difference between the 90th and 10th percentile fund returns – was consistent with December’s figure, at 8.6% compared to 8.1% the previous month.
Capital Flows
Flows into hedge funds administered by Citco started the year on a positive footing, with allocations to Fund of Funds, Arbitrage and Multi-Strategy portfolios driving net inflows.
January saw net inflows of $1.6B overall as subscriptions of $11B outweighed redemptions of $9.4B. Both tallies were lower than December when activity was heightened at year-end.
Fund of Funds strategies saw subscriptions of $1.3B and redemptions of $0.3B, to leave net inflows of $1B, the highest tally for the month. They were followed by Arbitrage strategies which had net inflows of $0.7B, Multi-Strategy portfolios at $0.5B, and Global Macro funds at $0.2B.
Equities strategies saw the biggest net outflows of $0.7B, as subscriptions of $2.9B were lower than redemptions of $3.6B, while Emerging Markets saw muted outflows of just $0.1B. Hybrid strategies enjoyed net inflows in 2023 but they also started the year with net outflows of $0.1B.
On an Assets under Administration (AUA) basis, all categories had a positive January. The largest strategies with more than $10B of AUA started the year with subscriptions of $5.9B, ahead of redemptions of $5.5B, leaving net inflows of $0.4B.
Funds with AUA below $1B, and those with between $1B-$5B of AUA, both saw net inflows of $0.5B, while funds with between $5B-$10B of AUA had net inflows of $0.2B.
On a regional basis, funds in Europe had the highest net inflows in January, at $1.2B, followed by funds in the Americas at $0.6B. Meanwhile, funds in Asia saw net outflows of $0.2B.
Current projections for Q1 2024 suggest net outflows of $13.8B, although this is subject to change.
2023 Citco Fund Of Hedge Fund Update
Funds of hedge funds serviced by Citco achieved an average return of 5.92% in 2023, rebounding from the -3.35% seen the previous year.
Whether concentrated or diversified, all categories of portfolio saw positive returns on a number of holdings basis, as did all strategy size groupings, and in total 88% of funds had positive returns for the year.
Having had a positive first half of 2023, the average fund across every category continued to make further gains in the second half of the year under review.
On an assets under administration (AUA) basis, the smallest funds with less than $100M of AUA were the top performers in 2023, with an average return of 6.74%, albeit with a broader spread in returns than larger fund categories. This was a marked change from 2022 for this grouping of managers.
Meanwhile, funds with the most holdings were the top performers for the year, as strategies with more than 50 positions achieved an average return of 7.19%.
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Performance
Overview of Investor Flows
Insights into Trade Volumes
The first month of 2024 saw trading volumes maintain the elevated levels we have seen since October. In a departure from this time last year when volumes dropped back, January 2024 saw daily average volumes that were in line with those seen in December, itself one of the busiest months of 2023. Across the vast majority of managers, trades in credit default swaps and corporate bonds were up the most. Our trade ingestion STP rate was a healthy 97%.
Insights into Payments, Treasury and Collateral
Treasury payments set a new high for the month of January, breaking the usual trend of a decline in the first month of the year to remain near the peak set the previous month.
The total number of treasury payments across hedge funds administered by Citco came in at 49,548 in January, the second highest monthly total ever and just marginally below the record 50,732 payments seen in December.
January’s total was 30% ahead of the same month last year, with hedge fund managers continuing to carry out greater numbers of transactions when it comes to treasury.
