Hedge Funds Had Net Inflows of $10.6 Billion in July

Date: Wednesday, August 19, 2009
Author: Tomoko Yamazaki, Bloomberg

Hedge fund assets increased by $10.6 billion in July, rising for a third straight month, as managers trading shares benefited from global stock market gains, according to Eurekahedge Pte.

Net inflows into the industry totaled $2.1 billion, while gains through performance were $8.5 billion, bringing total assets under management to $1.35 trillion, the Singapore-based research firm said in a report posted on its Web site.

Hedge fund managers are making a comeback after suffering their worst year on record in 2008, as stock markets recover amid optimism that stimulus measures will help put an end to the worst of the global economic recession. The MSCI World Index jumped 8.4 percent in July, bringing its year-to-date advance to 14 percent.

“The equity market rally has certainly put a tailwind behind certain strategies of hedge funds and it has sped the return of money to this asset class,” said Kirby Daley, a senior strategist in Hong Kong with Newedge Group’s prime brokerage business. “Going forward, investors should be sure to maintain a portfolio of the diversified hedge-fund strategies.”

The Eurekahedge Hedge Fund Index, tracking more than 2,000 funds, added 2.2 percent and gained for a fifth straight month, taking the year-to-date advance to 12 percent, the report said. It was the best year-to-July return on record, Eurekahedge said.

‘No Surprise’

The worst U.S. economic slump since the Great Depression abated in the second quarter as government spending programs started to kick in. Gross domestic product shrank at a better- than-forecast 1 percent annual pace after a 6.4 percent drop the prior three months, Commerce Department figures showed on July 31 in Washington.

The gap between fund closures and launches will narrow in the third quarter as the number of funds shutting down declined quarter-on-quarter since the fourth quarter last year, Eurekahedge said. Still, capital raisings for new funds are among the biggest obstacle, and the increased number of funds won’t be accurately reflected in the industry’s assets until mid-2010, Eurekahedge said.

“Newer firms will find asset gathering hard to start with, but our experience is that running with a small asset base for two to three years is one of the common indicators of long-term success, and was a common denominator of many of the current industry giants,” said Peter Douglas, principal of GFIA Pte, a Singapore-based hedge-fund consulting firm.

Asian Hedge Funds

All of Eurekahedge’s seven regional indexes rose last month, with managers of Asian and emerging markets funds the best performers. In terms of strategies, managers of so-called long- short funds, who bet on rising and falling stock prices, were the main drivers of performance, Eurekahedge said.

Rising stocks helped Asia-focused hedge funds in the second quarter, Chicago-based Hedge Fund Research Inc. said in a separate report released yesterday. The HFRI Emerging Markets Asia (ex-Japan) Index gained 18.86 percent in the quarter, the strongest performance since the fourth quarter of 1999, HFR said.

Overall hedge-fund assets in Asia increased by $3.2 billion in the quarter to $68.2 billion, the first increase since the second quarter of 2008, it said.

The report showed that hedge-fund firms investing in Asia are continuing to locate in China, which is now home to the second-highest number of Asia-focused hedge funds after the U.S. The percentage of Asia-focused hedge funds located in China increased to 23.6 percent, compared with over 5 percent from a year ago, HFR said.

“Investors looking to access growth in 2009 and in coming years will be allocating to Asia-focused hedge funds,” Kenneth Heinz, president of HFR, said in the statement. “As the Asian hedge-fund industry continues to evolve, the diversity of strategy offerings continues to increase and more funds are locating in Asia, enhancing the robustness and appeal of the industry for global investors.”

Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether asset prices will rise or fall.

To contact the reporters on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net