New data from the Citco group of companies (Citco), reveals that hedge fund performance dipped once again in October, continuing the recent downward trend, with an overall average weighted return of -0.4%.
Highlights:
- Global Macro funds were the top performing strategy type, with a weighted average return of 2.3%, building on a consecutive run of gains stretching back to June.
- Commodities funds were the worst performers, with a weighted average return of -2.6%, while most other strategy types saw small declines in performance.
- On an AUA basis, the largest funds with more than $3B of AUA were the only category in positive territory, with a weighted average return of 0.1%.
- Just over a third (36.4%) of funds achieved a positive return in October, down from 43.5% in September.
- Capital flows were negative in October with net outflows of $2.4B, but significantly lower than September’s figure of $9.1B.
- Multi-Strategy funds saw net outflows of $0.2B after seeing the highest levels of activity overall in October.
- Funds based in the Americas and Asia saw net outflows of $2B and $1B respectively on a regional basis, while Europe saw net inflows of $0.6B.
- Treasury volumes surged to the second highest level of the year in October, with 45,600 payments, as the heightened activity seen throughout 2023 continued.
Q4 forecast:
- Current projected net outflows for the final quarter have widened to $22.8B.
Q3 2023 hedge fund letters, conferences and more
Executive Summary
Performance
Hedge funds administered by the Citco group of companies (Citco) saw performance dip once again in October, continuing the recent downward trend, with an overall weighted average return of -0.4% that matched September’s figure.
In a sharp U-turn from the previous month, Commodities funds were the worst performers, with a weighted average return of -2.6%. Most other strategy types saw small declines in performance; Event Driven funds had a weighted average return of -0.9%, followed by Multi-Strategy at -0.7%, Fixed Income Arbitrage at -0.6%, and Equities at -0.5%.
However, continuing their recent winning streak, Global Macro funds bucked the overall trend with a weighted average return of 2.3%, building on a consecutive run of gains stretching back to June.
The largest funds with more than $3B of assets under administration (AUA) also produced a positive weighted average return of 0.1% in October, but they were the only segment to do so on an AUA basis.
Funds with between $200M-$500M were the worst performers among the AUA categories, with a weighted average return of -1.9%, followed by the $500M-$1B and sub $200M groupings which both saw a weighted average return of -1.3%. Funds with $1B-$3B of AUA had a small decline of -0.9%.
Just over a third (36.4%) of funds achieved a positive return in October, which was a decline from September’s figure of 43.5%. The rate of return spread – the difference between the 90th and 10th percentile fund returns – widened yet again to 7.9% (from 7.5% in September) as many strategy groupings continued to see the divergence between the best and worst performers increase.
Capital Flows
The first month of the final quarter saw overall net outflows, but these were significantly lower than the previous month’s figure.
Subscriptions of $6.1B were countered by $8.5B of redemptions, resulting in net outflows of $2.4B in October, down from the $9.1B of net outflows in September. Net outflows were seen predominantly in Equities, one of the best performing asset classes this year, with investors continuing to take profits after seeing double-digit gains year-to-date across major indices including the S&P 500.
Equities saw subscriptions of $0.7B outstripped by redemptions of $3B in October, resulting in net outflows of $2.3B. Nonetheless, this was an improvement versus the $6B of net outflows seen from Equities strategies in September.
Multi-Strategy funds saw net outflows of $0.2B after seeing the highest levels of activity overall in October (with more than $3B of subscriptions and redemptions respectively).
All other investment strategies saw much more muted activity, with the highlights including net inflows of $0.4B and $0.3B into Arbitrage and Hybrid funds.
On an Assets under Administration (AUA) basis, the largest and smallest funds saw net outflows, while other categories saw net inflows. The largest funds with more than $10B of AUA saw net outflows of $2.5B, followed by the smallest funds with less than $1B of AUA which saw net outflows of $0.6B. Conversely, funds with between $1B-$5B of AUA saw net inflows of $0.7B, followed by the $5B-$10B category at $0.1B.
Funds based in the Americas and Asia saw net outflows of $2B and $1B respectively on a regional basis, while Europe saw net inflows of $0.6B.
Current projected net outflows for the final quarter have widened to $22.8B, but these figures are subject to change.
Citco 2023 Q3 Hedge Fund Report
Hedge funds administered by Citco saw returns stagnate in the third quarter, with an overall weighted average return of just 0.01%, although at a strategy level returns were varied, as some of the winners in the first two quarters saw returns fall while some of the poorer performers rebounded.
The overall year-to-date return rose to 8.12%, with almost three quarters (73.2%) of funds administered by the Citco group of companies (Citco) achieving positive returns year-to-date.
In a reversal of previous quarters, Global Macro funds were the top performers, with a weighted average return of 3.07% in Q3, followed closely by Fixed Income Arbitrage funds at 3.02% and Commodities funds at 1.85%.
These gains have Global Macro and Commodities funds improving significantly year-to-date, although weighted average returns are still negative at -1.67% and -2.57% respectively for the period spanning January to September. Fixed Income Arbitrage funds saw weighted average returns jump to 8.61% year-to-date.
To learn more, read our full update for 2023 Q3 here.
Performance
Overview of Investor Flows
Insights into Trade Volumes
Total processed volumes were up significantly in October, increasing by 10.4% for the month. Reversing the trend we pointed out in September when trades were down across most strategies, the increases last month were seen across the vast majority of managers.
The rising volumes were aligned with spiking volatility in the latter half of October, with the Vix Index averaging 19.04 for the month, its highest monthly average since the banking crisis earlier in the year.
Amongst the vast majority of managers, futures and options on commodities and rates were up the most. Our trade ingestion STP rate was a healthy 97.5% in October.
Insights into Payments, Treasury and Collateral
The total number of treasury payments administered by Citco surged to the second highest level of the year in October as the heightened activity seen throughout 2023 continued.
October saw 45,600 payments transacted in total, well ahead of last month’s total of 41,822 and only just shy of the year high of 46,120 in March. The fourth quarter of each year has seen the highest overall volumes versus other quarters since Citco started tracking it in 2020, and 2023 could well continue this trend after such a strong opening month. October’s tally is 18% higher than the same month last year.
Treasury activity among hedge fund managers has rocketed since 2022 as the return on cash has climbed substantially, with US interest rates currently sitting at a 22-year high. Cash can now have a material impact on hedge funds’ performance, and managing that cash continues to be a priority, leading to more outsourcing of middle office services.
