Hedge funds' allure pulls in $18.6 bln in new cash in April

Date: Wednesday, June 11, 2014
Author: Svea Herbst-Bayliss, Reuters

The allure of hedge funds grew in April when investors added $18.6 billion in new money to these portfolios, according to a survey, even as their performance again lagged behind stock and bond markets' returns.

Investors sent nearly twice as much cash into hedge funds in April than in March when they added $10.6 billion, data from industry groups TrimTabs/BarclayHedge show. Multi-strategy hedge funds were the most popular, attracting $6 billion. Fixed income funds took in $5 billion and event-driven funds that bet on mergers, for example, saw $3.2 billion in inflows.

Fresh demand, fueled in part by rising equity markets which have made wealthy hedge fund investors even richer and given them fresh money to put to work, stands in stark contrast to industry returns, however.

The average hedge fund earned 1.99 percent through May, less than the 4.18 percent gain of the Barclays Capital Government/Credit Bond Index and the S&P 500's 4.95 percent gain. Hedge fund performance numbers are reported more quickly than flow data.

"Hedge funds are supposedly sophisticated investments, and people want to be with those kinds of managers," said David Santschi, chief executive officer at TrimTabs Investment Research, adding, "But hedge funds performance in the last years suggests that they may not be so sophisticated at all."

In the first four months of 2014, hedge funds took in $56.4 billion in new money, more than three times the $16.9 billion they took in during the same time in 2013. In April 2013, hedge funds added only $429.9 million in new money.