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Investors back hedges to navigate crisis

Date: Wednesday, August 10, 2011
Author: Tommy Wilkes, Reuters

Investors in hedge funds bucked the trend for shedding risk last month and parked fresh money with managers they back to profit in the global debt crisis, data from GlobeOp Financial Services (GO.L) showed on Tuesday.

Net inflows, measured by the GlobeOp Capital Movement Index -- which tracks the monthly net subscriptions and redemptions of around $167 billion (102.5 billion pounds) of hedge fund assets under administration -- were 1.11 percent in the month to August 1.

This contrasts with net hedge fund outflows of 0.11 percent the preceding month -- the highest monthly rate of withdrawals since October 2009 as many funds struggled to make money in choppy markets.

The average hedge fund has lost more than 3 percent this year, according to Hedge Fund Research's HFRX index, with many struggling for good ideas and opting to slash their bets over the summer for fear of further losses.

But the latest data for demand for hedge funds shows many investors still have faith that managers will successfully steer their assets through tumbling equity markets and debt crises.

"Investors have committed new capital in August despite unsettled markets in the U.S. and Europe," said Hans Hufschmid, chief executive officer at GlobeOp.

Big-name hedge funds such as Brevan Howard, Man Group's (EMG.L) AHL and Winton were up in July, with profits made from exposure to precious metals and short positions on the U.S. dollar.

Demand for hedge funds has steadily recovered since the financial crisis, when net outflows of more than 15 percent were recorded for the month to January 1, 2009, following the collapse of investment bank Lehman Brothers in September 2008.

Since the start of 2010 investors have pulled out more money than they have added to hedge funds in only three months -- the month to April 1, 2010, and the months to April 1 and July 1 of this year -- according to GlobeOp's index.