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Don’t write off hedge funds just yet.
That’s the message from UBS UBS, -1.54% which says that reduced allocations to the asset class should not be viewed as a sign that their popularity is waning.
Investors yanked $98 billion from hedge funds in 2019, the largest amount in three years, according to U.S. research platform eVestment.
In December alone, more than $16 billion was withdrawn from the industry. “Though December wasn’t as bad as many past Decembers, there is no masking that December 2019 outflows are emblematic of what was one of the more difficult years the industry has faced. The year marked the industry’s second consecutive annual outflow,” eVestment said in a report.
But Mark Haefele, chief investment officer at UBS, said in a note on Monday that this should be seen “as evidence of investors’ increased sophistication and better understanding of what such strategies can deliver in terms of risk and return.”
And while some investors may have reduced allocations to the asset class overall, hedge fund assets continued to rise amid strong returns, hitting a record high at $3.3 trillion according to the Hedge Fund Research database (HFR).
Last year, hedge funds returned on average 10.4%, their best figure since 2009.
Haefele said that managers with assets under management (AUM) above $5 billion are continuing to attract capital or suffer less from redemptions. They registered total outflows of about $8 billion, compared with $32 billion for managers within the $1-5 billion AUM range.
The eVestment report said investors are shifting money from hedge funds to private markets, across equity, credit and real assets. “This is potentially a reflection of investors’ emphasis on more specialized strategies and the search for a better diversifier with a multi-asset portfolio,” UBS’ Haefele said.
