Investors pulled $14.9bn from hedge funds in the first quarter of 2019 with outflows of $13.7bn in March alone, amid "clear dissatisfaction" over the sector's performance, according to eVestment research.
The fourth consecutive quarter of outflows - the first such run since the year to Q4 2016 - follows a 2018 that saw the global hedge fund industry deliver average losses of 5.1%, compared to S&P losses of 4.4% over the same period.
However, year-to-date, the sector has cancelled out 2018 losses with a 5.34% return for the hedge fund aggregate index, but for the same period the S&P 500 has rallied to 13.7%
The eVestment Hedge Fund Asset Flows Report revealed sub-sectors of the $3.3trn industry that underperformed in 2018 included large macro, long/short equity and managed futures, and these were also responsible for most of the first quarter outflows.
Additionally, long/short equity funds holding $1bn in assets or larger that underperformed in the first quarter saw outflows of $17.1bn over the period. Meanwhile, large managed futures and macro funds saw $9.1bn and $6bn over the quarter respectively.
eVestment said: "If the industry could just remove the influence of this group, it would have been a positive March for net flows, and a positive Q1 to start 2019."
The report also found "a very low proportion of funds" saw net inflows to end Q1 2019 as only 38% of managers reported receiving a net increase in investor funds, with multi-strategy funds the largest in that group.
However, eVestment added that "despite clear dissatisfaction" with the sector among investors, it is finding that "there is evidence of demand for hedge fund exposure".
It said: "Outside of our calculated asset flow data, eVestment sees pockets of demand from US pension plans.
"In aggregate US public plans are slightly below target [hedge fund] allocations, which implies a level of demand to move current allocations in-line with targets.
"The imbalance is slight, but it is clearly not negative."