Hedge funds hit with $111 billion in outflows in 2022 as Fed rate hikes rattle investors

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Hedge funds endured their third-worst year of outflows in about 15 years in 2022, as the Federal Reserve’s rapid-fire rate hikes rattled investors and pulled down asset prices, according to a new tally of fund flows by eVestment.

Investors withdrew a giant $111 billion from hedge funds in 2022, one of the industry’s worst stretches since the painful outflows of 2008-2009, and heavy redemption years of 2016 and 2019.

“The headline numbers appear to paint a bleak picture of the health of the hedge-fund industry heading into 2023,” a report by eVestment, which is a part of Nasdaq Inc. said Wednesday. Yet not all was terrible for the estimated $3.4 trillion industry, despite data that highlights “pockets of true difficulty.”

Fixed-income hedge funds were pegged as the hardest hit in 2022, with an estimated $43 billion in outflows (see chart), while nearly $38 billion was pulled from long/short equity strategies.

On the flip side, multistrategy funds brought in about $6 billion in 2022, as did managed futures funds, according to eVestment. It pegged average returns for managed futures funds as slightly more than 22% for the year, despite the tough stretch for markets.

Ken Griffin’s Citadel hedge fund also grabbed headlines recently for its estimated $16 billion profit last year. Overall, hedge-fund managers lost $208 billion last year, according to a related estimate by LCH Investments.

The S&P 500 index fell almost 20% last year, it worst since 2008, while bonds faced double-digit declines as higher rates pulled asset prices lower. Bond yields and prices move in opposite direction.

Given today’s higher bond yields, the start of 2023 has looked better for debt investors. The benchmark Bloomberg U.S. Aggregate Index was up 3.1% on the year through Wednesday and the Bloomberg U.S. Treasury (20+ Year) Index was up about 7%, according to FactSet.

The 10-year Treasury rate was around 3.46% on Wednesday, up from a one-year low of near 1.71% last March, while the 2-year Treasury yield was at 4.14%, up from roughly 1.1% a year ago, according to Dow Jones Market Data.

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