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 hedge funds rebounded sharply from April and remain in positive territory overall for 2024, with a weighted average return of 8.26% YTD.
Executive Summary
Performance
Hedge funds got back to winning ways in May with two-thirds of funds in positive territory for the month.
The overall weighted average return for funds administered by the Citco group of companies (Citco) came in at 1.7% in May, rebounding sharply from last month’s small dip to give a year-to-date return of 8.26%.
Fixed Income Arbitrage and Global Macro strategies were the top performers, with weighted average returns of 2.7% and 2.6% respectively, while Equities were close behind at 1.8%.
Multi-Strategy funds achieved a weighted average return of 1.4%, while Commodities funds also stayed positive for yet another month, albeit only just with a weighted average return of 0.1%. The latest figures mean Commodities strategies have now delivered positive returns for six months in a row, the last negative month being November 2023.
Only Event Driven funds were negative in May, with a weighted average return of -1.2% to leave them down for the second month-in-a-row.
Reversing last month’s small declines, all assets under administration (AUA) categories were also positive in May. The largest funds with more than $3B of AUA had the best returns, with a weighted average return of 2.1%, followed by the $1B-$3B of AUA category at 1.3%.
Funds with between $200M-$500M of AUA were next, with a weighted average return of 1%, while funds with between $500M-$1B of AUA and less than $200M of AUA followed at 0.2% and 0.1% respectively.
In stark contrast to last month, 67% of funds achieved positive performance in May, well ahead of the 48% in April.
Having seen a jump in the difference between the best and worst performing funds in April, the rate of return spread – the difference between the 90th and 10th percentile fund returns – dropped back to 6.1% in May, from 7.9% in April.
Capital Flows
Hedge funds saw further net inflows in May, with Hybrid funds in particular attracting interest from investors.
Building on April’s positive flows, funds saw net inflows of $3.2B in May as subscriptions of $11.1B were ahead of redemptions of $7.9B. Overall, hedge funds have now seen net inflows of $7.9B YTD.
Hybrid funds were the standout strategy in May in terms of investor flows, with net inflows of $1B.
Hybrid funds have now seen net inflows for four consecutive months, building on the momentum from 2023, and net inflows year-to-date (YTD) into the strategy type now stand at $5.9B, making them the most popular funds so far this year. Fund of funds were next with $0.7B of net inflows in May, followed by Equities at $0.6B, while both Arbitrage and Multi-Strategy funds had net inflows of $0.5B.
Emerging Markets and Global Macro strategies were both flat in May as inflows were matched by outflows, while Event Driven funds once again saw net outflows, although again these were minimal at just $0.1B.
On an Assets under Administration (AUA) basis, all strategies bar the very biggest saw net inflows. Funds with between $5B-$10B of AUA had the largest net inflows, at $2B, followed by the $1B-$5B category at $1B.
Funds with less than $1B of AUA had net inflows of $0.2B, while funds with more than $10B of AUA had small net outflows of $0.1B.
On a regional basis, funds in the Americas continued to lead the way, with a further $2.7B of net inflows in May. This was followed by Asia at $0.5B, while Europe was flat. Projections show a spike in redemptions in the final month of the quarter, but these numbers are subject to change.
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Performance
Overview of Investor Flows
Insights into Trade Volumes
In May, the total processed volume of trades dipped by 3% month on month, driven by a decline in activity among high-frequency trading strategies. This countered a general increase in activity among the majority of managers; once high-frequency strategies were excluded, the daily average trade volume for all remaining managers actually rose by over 20% for the month. This was against a backdrop of relatively stable volatility levels in equity markets.
Notably, there was a significant increase in exchange-traded derivatives, particularly index derivatives, which surged by more than 100% month-over-month. Other trends observed in May included a notable decline in CDS trades, which fell by 46%, following a 7% decrease in April. Against this backdrop, our trade ingestion STP rate was a healthy 96.2%.
Insights into Payments, Treasury and Collateral
May’s total treasury payment volumes were close to the highs seen at the end of December across hedge funds administered by Citco, maintaining the elevated levels seen throughout 2024 to leave the second quarter on course to be one of the biggest on record.
Payment volumes came in at 49,830, just a fraction below the previous month, and more than 20% higher than May of last year.
Treasuries continue to be a focal point for managers in the current environment, with yields still elevated as expectations of impending rate cuts get pushed back.
