Hedge funds globally saw a net US$7.8bn pulled out in the second quarter of 2022 as volatile markets sent many investors scurrying for safety.
Citco, a firm that provides administrative services to hedge funds, said large investors have been taking more money out than they have been adding to hedge funds, ending an 18-month investment trend.
A report by Citco showed global equity-oriented hedge funds suffered big, losing US$6.4bn in net outflows.
While US hedge funds were the biggest losers, Asian and European funds also saw outflows
Hedge funds have been adjusting their portfolios accordingly, said Goldman Sachs.
."Stymied by an uncertain market environment and poor recent returns, hedge funds have cut leverage, shifted back towards growth and increased portfolio concentrations in their favourite stocks," commented the Wall Street bank.
"The mega-cap FAAMG stocks remain near the top of our Hedge Fund VIP list of the most popular long positions.
"Recent performance has improved, matching the typical experience during correction rebounds, though leverage has room to rise if the market remains resilient.
"The average equity hedge fund has returned -9% YTD but gained +4% since the start of July."
Markets have fallen in 2022 following monetary tightening by central banks to fight soaring inflation and slowing economies, leaving investors rattled.
Stocks tanked and volatility spiked, leaving hedge funds and investors with large losses.
BlueBay Asset Management's Mark Dowding said since 2021 there had been a shift in money towards private equity and debt investments.
"Yet with the economic cycle turning, it won't be surprising that those investors may come to regret shifting money in that direction in quarters to come," he said, reports Reuters.
Noting investors will return to hedge funds if traditional fixed income and equity indices plummet, he added, "In this environment, hedge funds have had more of an opportunity to shine."