HedgeFund.net released early estimates indicating hedge fund assets fell an additional 5.8% in January to $1.748 trillion. The drop was largely due to net investor redemptions and fund liquidations of $124.7 billion during the month.

The estimate is based upon nearly 1600 funds reporting which, on average, were +0.20% in January. As more funds report, HFN expects final January performance to become negative.

January was the fifth month in a row in which hedge fund assets fell due to redemptions and liquidations. One positive aspect is investor outflows of $124.7 billion signified a slowing of redemptions from November and December. Of funds experiencing redemptions in January, larger funds had higher percent of assets redeemed than smaller funds. HFN estimates the average redemption in January for funds with greater than $500mm in AUM at the end of December was 13.5% compared to 10.9% for funds with less than $20mm. Additionally, HFN estimates that 57% of large funds experienced redemptions in January while 45% of small fund investors withdrew assets.

The HFN Hedge Fund Aggregate Average, an equal weighted benchmark of all single manager hedge funds and CTA/managed futures products in the HedgeFund.net database, was +0.20% in January. The HedgeFund.net database consists of more than 7,900 current hedge fund, fund of funds, and CTA products. Although performance will likely drift lower, January will still go down as one of the top 5 months for hedge fund outperformance over equity markets in the last 12 years.

Performance from convertible arbitrage strategies led the way in January. Convertible funds appeared to benefit from dislocations in the convertible bond market. The imposition of gates and suspended withdrawals significantly slowed the redemption induced selling by convertible arbitrage managers which persisted in prior months. As a result, lack of selling pressure did more to aid January performance than overly strong buying.

Despite crude oil being down during the month, energy sector funds were among the better performers for the first time in several months. This was likely due to performance from funds investing in energy MLPs which had a very good January due to distribution announcements being better than expected.

Most impressive during the month were long/short equity funds, the industry’s largest constituent. Nearly flat in January, managers averaged the fourth best outperformance of equity markets in the last twelve years.

Emerging market investments in Russia, India and the MENA region were the main cause for the HFN Emerging Markets Average -2.61% in January while funds investing in Brazil and broadly across Latin America had positive aggregate returns in January.