New data from the Citco group of companies (Citco) which reveals that hedge funds enjoyed a stellar performance in November, posting the strongest returns since January, with an overall average weighted return of 3.3%.
Highlights:
- Equities funds were the standout strategy type, with a weighted average return of 5.1%, followed by Multi-Strategy funds at 2.5% and Fixed Income Arbitrage funds at 2%.
- Only Commodities funds remained in negative territory, with a weighted average return of -0.4%, as the tough year for resources-focused strategies continued.
- On an AUA basis, all strategies posted positive returns. Funds with between $200-$500M of assets were the top performers, achieving the highest weighted average return of 3.9%.
- More than three quarters (76.8%) of funds achieved a positive return in November, a big reversal from October’s figure of 36.4%.
- Capital flows picked up marginally in October, with net outflows of $2.9B.
- Multi-Strategy had net inflows of $500M, followed by Hybrid at $400M as they continued to prove popular among investors.
- Funds based in Asia witnessed the highest net outflows of $3.2B, while European funds had net outflows of $100M and US-based funds bucked the trend with net inflows of $400M.
Q4 forecast:
- Current projected net outflows for the final quarter have widened to $25.2B.
Executive Summary
Performance
Hedge funds enjoyed a stellar November in terms of performance, posting the strongest returns since January as more than three quarters of funds had a positive month.
Funds administered by the Citco group of companies (Citco) achieved an overall weighted average return of 3.3% in November, with Equities funds the standout strategy type with a weighted average return of 5.1%.
Multi-Strategy and Fixed Income Arbitrage funds were the next best performers, with weighted average returns of 2.5% and 2% respectively, followed by Event Driven at 0.6% and Global Macro at 0.4%.
Only Commodities funds remained in the doldrums, with a weighted average return of -0.4% as the tough year for resources-focused strategies continued.
Meanwhile, on a fund size basis, all strategies had a positive November. Funds with between $200M-$500M of assets under administration (AUA) were the top performers, with a weighted average return of 3.9%, followed by the largest funds with more than $3B of AUA, which came in at 3.4%.
Funds with between $1B-$3B were next, at 3.2%, while funds with between $500m-$1B and those with less than $200M both saw weighted average returns of 2.3% to round off a very upbeat month.
In total, 76.8% of funds had a positive month, a big reversal from October’s figure of 36.4%. The rate of return spread – the difference between the 90th and 10th percentile fund returns – widened to 11.8% (from 7.9% in September) as many strategy groupings continued to see the divergence between the best and worst performers climb.
Capital Flows
Net outflows picked up marginally in November as investors stepped out of equities strategies in particular.
Overall, subscriptions totaling $6.6B were countered by redemptions of $9.4B in November, to give net outflows of $2.9B.
As we saw last month, Equities were the main driver of investor flows, with $4.8B of redemptions overshadowing $900M of subscriptions, leaving net outflows of $3.9B. Withdrawals from Equities strategies have been a mainstay for much of this year as more investors exited than invested.
The majority of the remaining investment strategies saw net inflows; Multi-Strategy had net inflows of $500M, followed by Hybrid at $400M as they continued to prove popular among investors. Funds of Funds and Arbitrage strategies also had net inflows of $200M each. The remaining strategies saw more muted activity.
On an Assets under Administration (AUA) basis, the largest funds were the main focus of activity in November. Funds with more than $10B of AUA saw subscriptions of $2.2B but redemptions of $5.4B, to leave them with net outflows of $3.2B.
Funds with AUA between $1B-$5B and $5B-$10B both had net inflows of $300M, while the smallest funds with less than $1B of AUA saw net outflows of $200M.
Looking across the regions, funds based in Asia witnessed the highest net outflows of $3.2B, while European funds had net outflows of $100M.
US-based funds bucked the trend with net inflows of $400M.
Currently, projected net outflows for the final quarter have widened to $25.2B, with a lot of activity expected in December as investors position for 2024, but the figures are subject to change.
Solid Foundations – An Operational Guide To Launching Infrastructure Funds
The infrastructure investment opportunity globally is expected to grow significantly in the coming years, with multiple long-term themes – including energy transition and population growth – supporting the investment case.
An increasing number of established alternatives managers are branching out into infrastructure to gain exposure to the asset class for the first time, but for those doing so, there are a number of operational points to take into account, including setting up suitable fund and fee structures, managing cash, and having access to the right technology platforms.
In our new report, Citco shares some of our insights around launching infrastructure funds, based on our experience of administering $65B of Assets Under Administration (AUA) in Infrastructure, $190B in Real Assets AUA, and $808B of AUA overall in Private Markets.
To access the report please follow the link here.
Performance
Overview of Investor Flows
Insights into Trade Volumes
Total processed volumes rose moderately in November, increasing by 1.7% for the month to build on the big jump seen in October. Increases in trade volumes were seen across a range of managers, but this came against a backdrop of falling volatility which steadily declined throughout the month.
Having witnessed the highest monthly average for the Vix Index since the first quarter banking crisis in October, volatility fell sharply in November to 14.07. The month included a daily reading of 12.46, the lowest one-day reading we have seen since January 2020. Conversely, even as volatility declined, trading volumes were up across all strategies for the second month in a row.
Amongst the vast majority of managers, futures and options on indices and rates were up the most. Our trade ingestion STP rate was a healthy 97.2% in November.
Insights into Payments, Treasury and Collateral
Treasury payments stayed at elevated levels in November to leave Q4 on track to break records.
The total number of payments in November came in at 44,333, once again significantly higher on a year-on-year basis, and just marginally below October’s total.
Hedge funds administered by Citco are transacting more treasury payments than ever before thanks to elevated returns on cash, with every quarter of 2023 so far seeing a significant jump versus the corresponding quarter in 2022.
In Q4 of this year, with two months now concluded, volumes are already 11% higher than the same two-month period last year, leaving Citco on track for a new quarterly peak once December’s numbers are in.
