I’m always entertained by the breathless reporting of any bit of hedge fund data. The fact is there are so many sources of hedge fund performance and asset flow data out there that no single source can claim to paint a totally accurate portrait of the state of the industry. Very often, any two sources may be in conflict with one another, leaving investors scratching their heads and wondering where the truth lies.
Take hedge fund redemptions in January.
On Feb. 10, we ran a Reuters story about the GlobeOp Capital Movement Index, which showed hedge fund redemptions in January were the lowest ever.
From the story:
Gross outflows were at their lowest on record at just 0.53 percent in the month to Feb. 1, as investors hung on at a time when government bonds are yielding low returns.
“It could well be that in a zero interest rate environment and a challenging equity market, a diversified portfolio of hedge fund investments is becoming an ever-more attractive alternative,” GlobeOp Chief Executive Hans Hufschmid said. “Investors remain committed to the hedge fund sector.
That sounds like great news, right?
Then today BarclayHedge and TrimTabs put out data that pretty much totally contradicts the GlobeOp numbers. According to those two firms, hedge funds redeemed nearly double the assets cited by GlobeOp â€“ 0.9%, or about $15.2 billion. The story out of BarclayHedge-TrimTabs is one of funds that recorded positive performance in January for only the second time in the past eight months, but that still underperformed the broader market. Investors, frustrated with underperformance and high fees, are pulling out.
Leo Mirochnik, an analyst at TrimTabs, sounded decidedly less upbeat than Hufschmid. “January marked the biggest monthly outflow since July 2009, when hedge funds redeemed $17.7 billion,” Mirochnik said. “The hedge fund industry has experienced net outflows in four of the last five months.”
It’s worse for funds of funds, which charge an additional layer of fees purportedly for their expertise in finding the best hedge funds for investors who don’t have the time, resources or knowledge to do so themselves. Funds of hedge funds underperformed hedge funds by 140 basis points, according to BarclayHedge-TrimTabs. “It seems funds-of-funds managers might have a hard time explaining their layers of fees to their clients, as funds of funds have underperformed hedge funds by 200 basis points over the past year,” Mirochnik said.
The winners among hedge funds, according to BarclayHedge-TrimTabs, were multi-strategy hedge fund managers. Multi-strat funds took in $2.6 billion (about 1.1% of assets) in January as investors searched for managers positioned to gain from global geopolitical uncertainty, according to the firms’ report.
The trick with hedge fund data is to collect as much as you can, understand how the various firms collect their data and from whom, and synthesize all the information to get the broadest possible view. Or, if you have a source you trust based on that source’s record, stick with it and ignore the noise of the other data points. Doing anything else will likely just make you crazy.