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Global hedge fund assets top USD3trn for the first time, says eVestment

Total assets in hedge funds surpassed USD3 trillion for the first time on record in May 2014, according to a report from eVestment. 

The report reveals that after reaching a new all-time high in April, surpassing the Q2 2008 peak, new allocations and performance gains pushed the industry to a new milestone.
 
Investors continued to allocate heavily into hedge funds in May, the fourth consecutive month of elevated inflows. The USD22.0 billion of new capital added brings year-to-date flows to USD93.3 billion, the largest five month total to begin a year since 2007.
 
Performance gains added USD37.8 billion to total AUM for an estimated asset weighted return of 1.28 per cent in May, well above the 1.00 per cent the industry produced on an equal weighted basis during the month. For the first five months of 2014, equal and asset weighted returns are nearly identical, both just below 2.00 per cent.
 
Investors continued to allocate to equity exposure in May, a trend which has persisted since June 2013. The USD11.5 billion added to equity strategies during the month brings YTD inflows to USD59.4 billion, the highest level of investor interest in alternative equity exposure over a five month span since mid-2007.
 
Investor interest in alternative credit strategies appears to have returned to solid footing after the six month stretch of mixed flows which followed the mid-2013 worries of rising rates. Investor allocations of USD8.4 billion during the month were slightly above the group’s average monthly allocation in the twenty months prior to the mid-2013 disruption.
 
Investors again allocated heavily to event driven strategies in May. The USD6.4 billion of inflows brings total allocations to USD31.1 billion for the year. Activist strategies have accounted for over 70 per cent of event driven fund inflows reported to eVestment in May, indicating the group took in over USD4 billion during the month.
 
MBS strategies, which appear to be a bellwether for investor sentiment towards credit amid interest rate shifts, had strong inflows in May of USD1.5 billion. Investors removed an estimated USD10.1 billion from MBS-focused funds from June 2013 through March 2014, but similar to the rest of the credit oriented strategies, positive sentiment appears to have returned.
 
Macro hedge funds also had their second consecutive month of net inflows in May. The USD1.6 billion added during the month was not enough to bring YTD flows to positive territory, but it may mark a shift of investor sentiment to a group which has struggled both in terms of aggregate relative returns and investor retention since the beginning of 2013.
 
Managed futures strategies have not yet seen the return of positive investor interest macro strategies have enjoyed. The universe of predominantly systematic strategies had their ninth consecutive month of outflows in May, the 20th month of net redemptions in the last 21.
 
Investor sentiment towards emerging market hedge funds continues to be mixed with May’s outflows marking the fifth month of flows changing direction from the month prior. Interest in EM hedge funds shifted in-line with the return of positive sentiment towards broad equity exposure in mid-2013, but deviated to the downside as declines in Chinese equity markets and conflict in Russia/Ukraine emerged. 

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