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- Investors expect to pull about $20 billion from hedge funds this year, according to a study from Goldman Sachs Group.
- It would be the third year in a row the industry has seen annual outflows.
- Still, it would be a smaller loss than in 2019, when hedge funds saw $98 billion in outflows, according to eVestment.
- There's also proof hedge funds are off to a better start in 2020 - funds outperformed the broader market in January, according to one hedge fund index.
- Read more on Business Insider.
Hedge funds are again expected to see net outflows in 2020, a foreboding sign after the industry saw consecutive outflows in 2018 and 2019.
Net outflows from hedge funds in 2020 are expected to be about $20 billion, according to a study by Goldman Sachs that in December surveyed 444 allocators advising more than $1 trillion in assets. The bulk of the outflows are expected to come from pension funds, endowments, and family offices, according to the report.
Hedge funds have come under increasing pressure from investors after years of underperformance. In 2019, the industry saw more closures than openings for the fifth year in a row. In the same year, while the S&P 500 returned 31%, the Bloomberg Equity Hedge Fund Index only gained 13%.
In the last five years, hedge funds have underperformed a traditional 60/40 equity bond allocation for the first time since 1990, according to the report. Investors have dumped the funds in favor of cheaper investment vehicles taking advantage of the record bull market run.
A majority of the allocators surveyed by Goldman said that underperformance could be pinned on challenging macro conditions including dovish central bank policies. But nearly half had another reason - they said that the industry has grown too large and that passive and quant strategies have made it harder to execute.
Underperformance has changed the hedge fund landscape, according to the report. "Many allocators now focus primarily on the diversification benefits of hedge funds," Goldman Sachs wrote in the report. They're taking a very nuanced, surgical approach to the way they invest in hedge funds and are no longer considering them homogeneous asset classes, according to the report.
And, while $20 billion in annual outflows is a lot, the estimate is an improvement over the industry's performance last year, according to the report. In 2019, investors pulled $98 billion from hedge funds, the largest outflow the industry has seen since 2016, according to eVestment.
There is also proof that the hedge fund industry is off to a solid start in 2020. The Eurekahedge Hedge Fund Index returned 0.08% in January, beating the broader market - the S&P 500 declined 0.16% in the month.