Hedge funds worldwide are bracing for investor redemptions to the tune of $20 billion during the rest of 2022 despite seeing net inflows in the first quarter, as reported by Cisco Group Ltd.
What is the story?
As per Bloomberg News, the current quarter will see scheduled withdrawals from investors for $13.5 billion, while another $6.3 billion is lined up for the rest of 2022, as per the Fund Administrator. The withdrawals are significantly lower than the first quarter redemption of nearly $39 billion; it can change in either direction depending on investors’ actions and fund terms.
The recent months saw Hedge funds being hit the hardest with significant losses caused by rising inflation, tight monetary policies, and geopolitical tensions. Large funds that included Melvin Capital Management and Tiger Global Management have suffered huge losses.
The redemption figure does not include fresh potential investments. The first quarter saw the industry gain a net inflow of $13.6 billion, more than double the previous quarter. According to Cisco, the new subscriptions touched $52.5 billion, overtaking the redemptions. 79% of fresh investments went to funds with $5 billion in assets.
In the first quarter, only 40% of the hedge funds made profits compared to 61% in the previous quarter. The Cisco report shows that the gap in returns between the top and bottom 10% performers widened to 26 percentage points, more than the 17% gap in the previous quarter. Cisco manages assets for hedge, real estate, private equity, and other types of funds globally.
Hedge funds typically demand that redemption requests are submitted in advance, months or weeks ahead by investors. These funds cap the amount that can be withdrawn at a specific time, thus dragging outflows for months and years. Redemption requests submitted by investors and still not matured can be canceled.
