Hedge fund investors aggressively allocating to equity strategies in 2017 could have been a “bad omen” for equity markets.
According to eVestment’s ‘Q4 Hedge Fund Industry Asset Flow Report’, the inflow of $30 billion (€24.4 billion) was the third highest post-2008 inflow to equity strategies behind 2014.
In the last two occasions post-2018 that investors allocated at least this much to equity strategies, the ensuing years saw major equity market pullbacks, eVestment said in its report.
Investors hunting for equity-focused hedge funds in 2017 may have been an indication of unease about global equity valuations, eVestment suggested, though it could have been just a search for alternatives to long-only strategies.
The report also found that European-domiciled firms were the largest asset gainers in Europe, thanks to demand for equity strategies. Two of the three largest asset gainers in Europe in 2017 were focused on equity markets.
Hedge funds concluded 2017 with the strongest quarterly capital inflow since the second quarter of 2015.
December’s hedge fund outflows, which were the lightest since 2010, should be viewed as positive for the industry, the report said.
Investors removed an estimated $8.35 billion from hedge funds in December, compared to an average net December outflow of over $16 billion from 2009 to 2016.
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