Hedge funds still attracting billions in new cash

Date: Wednesday, July 21, 2010
Author: Emily Chasan, Reuters

Hedge funds see $9.5 billion inflow in Q2 - HFR

Macro, event driven funds show strong returns & inflows

Hedge fund industry assets still slip to $1.65 trillion

Hedge funds pulled in $9.5 billion during the second quarter with nervous investors preferring to send their money to the biggest and best established managers, according to industry tracker Hedge Fund Research Inc on Tuesday.

Hedge fund managers have seen flat returns on average as they have battled a volatile market so far this year, but that hasn't stopped wealthy investors from sinking more cash into the industry. Strategies like global macro and event-driven funds that may insulate investors from stock market swings, have been seen as particularly attractive.

The fund industry's most established firms with more than $5 billion in assets under management, saw $8.8 billion of the total inflows in the second quarter, according to HFRI.

"The hedge fund industry continues to be dominated by investor preference for robust fund infrastructure, encompassing enhanced liquidity and transparency," Ken Heinz, president of HFRI, said in a statement.

Overall, hedge fund performance declined by about 0.2 percent in the first half of 2010, according to HFRI. While the performance may seem shabby compared to blockbuster 2009 returns, hedge funds have shown that they are getting better at holding onto investor capital.

"Compared to at least the equity markets, they've fared pretty well," said Oliver Schupp, president of alternative investment specialist Credit Suisse Index Co Inc. The benchmark Standard & Poor's 500 index .SPX was off 7.9 percent for the year through June 30, though has bounced back some in the last few weeks.

Global macro, event-driven and fixed income arbitrage funds have been the best performing funds so far this year and also attracted the most new capital, according to data on Tuesday from Credit Suisse.

Global Macro funds which are up 4.2 percent on average so far this year, have attracted some $9.1 billion in inflows in 2010, boosted mostly by an $8.3 billion surge in the first quarter, according to Credit Suisse.

Fixed income funds and event-driven funds have each attracted about $2 billion of fresh inflows this year, according to Credit Suisse. Through the second quarter, fixed income fund returns are up 5.5 percent on average, while event-driven funds are up 1.8 percent on average, Credit Suisse said.

By contrast, emerging market funds, long-short equity funds and multi-strategy funds saw the biggest outflows in the second quarter, Credit Suisse said. Multi-strategy funds have been the bigest losers of the year, seeing some $8.9 billion in outflows.

"The significant outflows in multi-strategy could have to do with investors desire to have more clarity about their strategy," Schupp said.

Total flows into the industry are still relatively flat. Hedge fund asset flows for the first half declined by $1.4 billion overall, according to Credit Suisse, suggesting investors are mostly staying put after an $81.8 billion outflow in the first half of 2009.

The entire hedge fund industry was managing some $1.65 trillion in capital at the end of the second quarter, down from $1.67 trillion in the first quarter, HFRI said noting that the largest firms now manage 60 percent of all hedge fund industry capital.