Hedgies set for recovery

Date: Tuesday, October 27, 2009
Author: Emma Keens, City.AM

THE HEDGE fund industry is close to recouping the losses it suffered during the financial crisis, according to data from Hedge Fund Research (HFR).

HFR’s indexes show that the average fund needs to gain just two per cent to reach the high water mark – or its value on 30 June 2007, the height of the last boom. At this point, fund managers can start to bank performance fees once again.

The HFR Fund Weighted Composite Index climbed 6.9 per cent in the third quarter, pushing returns to 17.1 per cent for the nine months to the end of September. This compares to a 19 per cent fall in the same period in 2008.

Hedge funds pulled in $1.1bn (£675m) during the third quarter, marking the first time investors added money after a full year of heavy outflows, HFRI said. In the previous four consecutive quarters clients pulled out $330bn from hedge funds.

Nearly two-thirds of the hedge funds surveyed by HFRI reported inflows, accounting for a total of $38bn in new assets in the quarter. But these gains were largely offset by over $37bn in capital outflows from investor redemptions and liquidations, resulting in a net inflow of $1.1bn.

Hedge funds now manage $1.5 trillion, HFRI said, compared to the $1.9 trillion they managed at the end of 2007.

The increase suggests that investors like pension funds and endowments are slowly returning to these riskier funds just a year after the industry delivered its worst-ever returns.