Hedge funds brace for $20 billion of redemptions, Citco says

Hedge funds globally are bracing for nearly $20 billion of investor redemptions for the rest of 2022, even after seeing a net inflow in the first quarter, according to a report from Citco Group Ltd.

Investors are already scheduled to withdraw $13.5 billion from the industry in the current quarter and another $6.3 billion the rest of the year, said the fund administrator. While the numbers are smaller than the first-quarter redemptions of almost $39 billion, they can change significantly in either direction, depending on fund terms and investor actions.

Hedge funds have been hit with widespread losses in recent months, amid a confluence of factors including geopolitical tensions, rising inflation and monetary tightening. Large funds, including those run by the Tiger Global Management and Melvin Capital Management, are among those that have suffered outsize losses.

The figures don’t reflect potential fresh investments. The industry drew a net inflow of $13.6 billion in the first quarter, more than double the amount in the previous three months as fresh subscriptions reached $52.5 billion, overwhelming redemptions, Citco noted. Out of the net total, nearly 79% went to funds with assets of $5 billion and more, even as poor performances at large funds dragged down average industry returns.

Only 40% of hedge funds globally made money in the first quarter, compared with 61% in the previous three months, Citco said. The return gap between the top and bottom 10% performers widened to nearly 26 percentage points in the first quarter, from 17 percentage points three months earlier, the report showed.

Citco administers assets for hedge, private equity, real estate and other types of funds globally.

Hedge funds usually demand investors submit redemption requests weeks or even months ahead. They often cap the amounts of capital investors can withdraw at a given time, dragging outflows over months or even years. Redemption requests that have been submitted but not yet honored can still be canceled by the investors. Actual outflows for the rest of the year can also increase as investors submit fresh requests for funds that have shorter withdrawal lead times.

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