Tuesday, 8 June 2010

April saw Outflows - Negative Data Revisions Caused by Funds of Funds?

A month ago when I reported on industry fund flows I wrote:

"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."

My expectations were met in April, as TrimTabs Investment Research and BarclayHedge reported that the hedge fund industry posted an estimated outflow of $3.5bn in that month.  

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
Inflows in April 2010              -$3.5bn

Source: TrimTabs Investment Research and BarclayHedge

TrimTabs and Barclayhedge also reported that the April flows "were the third outflow in five months". This was not how the flows data were reported month by month - the table above gives the flows as originally reported in each month, and April was the first negative flow of the year for the industry. This suggests that  the early estimates of (positive) flows were not backed up by the subsequent data reported to databases.

All hedge fund databases get a similar experience - the early reporting funds are usually those with better numbers to report. Also funds of hedge funds report to databases with a lag to single managers. The negative flows could be concentrated in the multi-manager hedge funds, which would be consistent with barely a month of positive inflows to funds of funds (in aggregate) since the middle of 2008.

So positive flows, such as there have been, have been concentrated in single manager hedge funds, and funds of hedge funds as a whole continue to have difficulty attracting net new assets.

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