Highbridge's $1bn inflows signal tentative return to hedge funds

Date: Friday, April 3, 2009
Author: James Mackintosh, Financial Times

Hedge funds are back in the game. After a dismal 2008 that saw record losses and record withdrawals, investors are tentatively returning to the sector, prompted by signs that funds made money even as markets plunged this year.

Highbridge Capital Management, once the world's biggest hedge fund, was a big winner, with $1bn of net inflows this year, including $225m from majority owner JPMorgan, according to people familiar with the fund. It ended the quarter with $20bn under management.

Many hedge funds have seen investor panic recede as they record positive returns, according to managers and investors.

Large amounts of withdrawal requests by investors have been cancelled at some of the biggest funds, including DE Shaw, the New York manager, although overall the industry remains likely to see outflows, investors and analysts said, and more lossmaking funds will shut.

"You're starting to see the first signs of a turning-around," said Ken Kinsey-Quick, who runs funds of hedge funds for London's Thames River Capital. "Hedge funds are out of the ICU into the recovery ward."

Thames River recorded net investments into its singlemanager hedge funds last month, and many investors cancelled withdrawals - something managers said was repeated at many funds that made money this year.

Highbridge's inflows follow strong performance across its funds this year. But like many in the industry, Highbridge was hit hard by last year's turmoil and remains well below its peak of $34bn assets under management.

Highbridge's flagship fund was up 7.2 per cent for the year to the end of March, against a fall of 14 per cent in the S&P 500 index. Last year it fell 25 per cent.

A range of other Highbridge funds also had a good first quarter, although most have not yet made back losses from last year.

Earlier this year, Highbridge introduced a new class of shares for its flagship fund, charging 1.5 per cent a year and 20 per cent of profits for those willing to lock up money for a year, against 2 and 25 for quarterly withdrawals. JPMorgan put $225m into the new class, according to people familiar with the investment.

However, analysts believe the industry as a whole will see outflows for the end of the first quarter, even as the average fund managed to make money through this year's market turmoil.