Hedge Funds Outperformed Their Benchmarks In Q3 Amid Stock Market

The third quarter was a weak quarter for stocks, with the S&P 500 down 0.6%. As a result, hedge funds didn’t have an outstanding performance either, but they still outperformed the index, meaning it wasn’t a bad quarter for them.

September hedge fund returns

According to Citco, funds on its platform generated a 1.15% overall weighted average return after a volatile September. The third quarter was significantly weaker than the first two quarters, which generated 8.25% and 6% returns for hedge funds on Citco’s platform.

Declan Quilligan of Citco states that all strategies and most assets under administration categories generated positive returns during the third quarter. The event-driven strategy led the way with a commanding return of 6.46%. Commodities funds were in second place with a 6.1% return.

Quilligan says that for both event-driven and commodities, the average was skewed by large positive returns from outliers, with the median returns coming in much lower. The median return for event-driven funds was 0.91%, while the median return for commodities funds was -0.67%.

On the other hand, multi-strategy funds had the weakest quarter with a return of 0.39%. During the third quarter, about 59% of hedge funds on Citco’s platform generated positive annual returns, compared to 82% in the second quarter and 73% in the first.

Hedge fund returns by size

As far as hedge fund size goes, the second quarter started the trend of large funds producing higher returns, and this trend continued in the third quarter. Funds with more than $3 billion in assets under administration generated the highest returns at 1.57%, while funds with less than $200 million generated a weighted average return of 0.25%.

Hedge funds with $200 million to $500 million did the worst of all the size categories, delivering a weighted average return of -0.09%. Additionally, the dispersion in returns between the top and bottom performers was wide at 12.49% for the third quarter.

Investor flows

He also reports that the third quarter continued a trend of inflows as funds saw net positive inflows for the months intra-quarter but some net outflows during the quarter-end trading cycle. For the whole quarter, investor flows amounted to a net $6 billion.

Citco reports that funds overseeing $1 billion to $5 billion received the bulk of the inflows, and those managing more than $10 billion also saw healthy inflows. As far as strategies go, private capital hybrid and multi-strategy funds saw the highest inflows, while all other strategies recorded marginal net outflows during the third quarter.

Treasury activity remains at record highs with a very strong end to the third quarter. Treasury volumes averaged over 30,000 payments a month…