With hedge fund redemption pressures - as a result of what has been largely abysmal performance by the 2 and 20 crowd in both Q3 and 2018 - frequently cited as one of the potential culprits for the recent swoon in markets...

... today we got confirmation of just that, when the latest eVestment Hedge Fund Asset Flow report indicated that investors had removed an estimated $14.72 billion from hedge funds in September pushing Q3 net flows into negative territory with an estimated $5.71 billion leaving the industry in Q3. As a result of September's spike in outflows, year-to-date net flows are now flat after being stubbornly in the green for much of the year despite what has been another deplorable performance year for hedge funds. As as result, on September 30, total industry assets sit at $3.310 trillion.

And while the overall hedge fund industry is still growing, it’s not growing from new allocations. Over the last three years, investors have removed over $100 billion from the industry, but performance gains have offset these losses, at least until now: overall asset increases cannot hide the fact that over the last twelve quarters, investors have been net redeemers in eight of them. Growth is stagnant, and returns have not been making an impact on investors to broadly return, especially since they have been largely negative.

Below are the key points from the latest report:

September’s redemptions were larger than normal.

According to eVestment, it is has been the norm over the last six quarters for there to be a wave of redemption pressure in the last month of the quarter. In each of the last six, and twelve of the last thirteen, there has been a net outflow in the final month of the quarter. Over those thirteen months, the average net flow (including the one month with net inflow) was an outflow of $11.85 billion. September’s outflows were larger than normal, but the norm has indeed been for there to be quarter-end redemption pressure.

Long/short equity redemptions rise, year-end will be interesting.

A volatile start to the year, followed by elevated losses in June appears to be weighing on long/short equity fund flows, which are now firmly negative YTD. Asset-weighted returns have more recently improved, which could go a long way in retaining assets into year-end. While December outflows have been the norm in the industry in recent years, long/short equity funds have been able to buck this trend.

Managed futures funds face seventh consecutive month of redemption pressures.

Managed futures strategies are paying the price for their volatile returns of 2017 and early 2018. If there is a positive theme, it would be that performance has been improving in an increasingly volatile market.

Event driven funds had net positive flows for a second consecutive month.

While there were a handful of strategies with solid allocations in September, the more apparent reason for the net inflow in September is the wave of redemption pressures that has been washing over event driven funds for several quarters seems to have abated. With solid returns for most within the group in 2017 and 2018, the recent net inflows more accurately reflect the general sentiment toward the universe of products.

Macro funds face uncertain remainder of 2018.

Macro is the leading asset gaining segment of the industry this year, and is the only major strategy for which >50% of products have net inflows in 2018. Returns have recently been volatile including large asset weight declines in August. This is a diverse group, however, and there are large managers outperforming and seeing inflows as a result.

Visual representation of flows:

Finally, here is the latest hedge fund performance table from eVestment: