Monday, 10 May 2010

Rate of Inflows to Hedge Fund Industry Fail to Accelerate in 2010

TrimTabs Investment Research and BarclayHedge reported that the hedge fund industry posted an estimated inflow of $7.6 billion, or 0.5% of assets, in March 2010.  The firms estimate that hedge fund assets stand at a 16-month high of $1.64 trillion. Hedge fund third-party marketers have not seen much of these flows - they say that they have seen subscriptions static or even slightly lower than at the end of last year.

It could be that these statements are not incompatible: much of the net inflows to date have been to large well-established funds who do not feel the need to use 3PMs. The external marketers will see their share of flows when the scale of flows pick up further, and when industry flows broaden out across the strategies, and broaden across the maturity and scale range seen in the industry.

In terms of strategies in receipt of these flows the trends of last year have continued: Event Driven funds have done best, having had an inflow in March equivalent to 1.5% of assets, on the back of industry leading returns of 6.6% in the first four months of the year. The largest outflows from an investment strategy in March 2010 were from the Multi-Strategy Funds – a strategy that had net outflows through last year.

Industry Level Net Flows Per Month

Inflows in November 2009     $18.7bn
Inflows in December 2009      -$3.8bn
Inflows in January 2010           $7.1bn
Inflows in February 2010        $16.6bn
Inflows in March 2010             $7.6bn

Source: TrimTabs Investment Research and BarclayHedge


The flows at the industry level are unlikely to pick up in the next few months given the gyrations in the markets for traditional assets. Collective memory of falling markets is still strong at this point, only just over a year on from the market lows. The level of traded equity volatility has doubled in the last few weeks, and price levels in FX, commodities, equities and bonds have shifted quickly enough that the perceptions are that the markets are trading more emotionally. This is not the background against which most institutional investors can devote senior management time to making active decisions about allocations to hedge fund strategies, and still less about allocations to individual hedge fund managers.

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