Investors flooded into Hedge Funds in August

India Infoline News Service | Mumbai |

Performance losses reduced AUM by US$20.8bn, or -0.78%, resulting in a very slight monthly decline of overall industry AUM to US$2.688 trillion.

Hedge fund investor flows built upon the prior month’s increase to post the largest net inflows since August 2012. Investors added an estimated US$19.6bn during the month, the largest monthly inflow of the year. Performance losses reduced AUM by US$20.8bn, or -0.78%, resulting in a very slight monthly decline of overall industry AUM to US$2.688 trillion.

Investor interest in equity exposure via hedge funds has increased in each of the last three months. August’s net inflow of US$8.6bn was the universe’s largest show of investor interest in nearly thirty months, since April 2011. Investors showed interest in both directional and non-directional exposure. Given that market neutral strategies are significantly smaller than directional equity, the large flows to the group are significant.

The last time interest in equity market exposure via hedge funds was this positive was just prior to height of the European financial crisis. From September 2010 to June 2011, investors added net US$33.1bn to equity strategies. In the ensuing six months, performance losses reduced AUM by US$41.7bn spurring a redemption cycle which lasted until Q2 2013.

Flows to credit strategies were positive in August, an indication that recent shifts in UST rates have not materially impacted the perceived opportunity for further gains from the group. Interest in directional credit rebounded from July, as did flows for MBS focused strategies, though flows for the MBS group remain slightly negative over the last three months.

Over the last three months, multi-strategy funds have received the largest allocations overtaking both credit universes for the first time since August 2012. It is of interest that industry flows surged in August for the second year in a row and that multi-strategy funds were a prime beneficiary both then and now. This may be due to the allocation cycles of large institutional investors and their strategy preferences.

Despite the broad exuberance towards hedge funds in August, macro fund flows were negative, albeit following a large inflow the month prior. Over the last three months, macro fund flows have been virtually flat while over US$16bn has been added to the hedge fund industry.

Managed futures funds experienced their first monthly inflow in the last twelve months. It is possible these inflows, along with macro flows the month prior were in response to August’s equity market sell-off, events in Syria and the impact of the US Fed’s expected onset of tapering its asset purchase program. With both those factors seemingly removed for now, and equity markets appearing to be back to the status quo of reaching new highs daily, it will be interesting to see if inflows persist for the universe.

Of funds with greater than US$1bn in AUM entering August, 59% had net inflows during the month and accounted for almost 70% of August’s net inflows, or US$11.3bn. This group currently accounts for only 8% of funds reporting for August, further evidence of the concentration of AUM to the largest products, a trend being driven by increased direct investment from large institutional investors.
 

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