Retail investors pulling out of Europe's hedge fund industry

Assets in alternative 'UCITS' funds in Europe dropped 3% to $236.3 billion at the end of March from three months earlier, as per research provider Kepler Absolute Hedge, which has data going back to 2016

Retail investors are pulling out of Europe's hedge fund industry, with assets under management (AUM) dropping to an eight-year low, according to data released on Monday, as higher interest rates and lagging performance send smaller investors elsewhere.

Assets in alternative 'UCITS' funds in Europe dropped 3% to $236.3 billion at the end of March from three months earlier, as per research provider Kepler Absolute Hedge, which has data going back to 2016. The decline was faster than the 0.4% decline seen in the earlier two quarters, Kepler said.

UCITS, or undertakings for collective investment in transferable securities, are a type of fund sold in the EU which are heavily regulated to make them safer and more accessible to the public.

While UCITS have proved popular overall - accounting for €12 trillion ($12.9 trillion) of assets at the end of 2022, per industry data - they have fallen out of favour with investors chasing higher returns.

Hedge fund UCITS are rightly getting a lot of flak from investors lately. In fact, they increasingly strike me as an ice cube sitting in the sun, according to Harald Berlinicke, partner at Sarnia Asset Management.

As many investors have found out the hard way, handcuffing hedge fund managers by imposing tighter restrictions may have defeated the purpose, Berlinicke added.

UCITS funds place restrictions on the leverage and risk-taking that enable other funds bought by institutional investors to stir up their returns.

Overall assets dropped by $7.6 billion from alternative UCITS funds in the first quarter, mostly from multi-strategy, macro-economic and deals focused funds, while some hedge fund strategies such as managed futures saw growth, according to Kepler's report.