Investors are returning to hedge funds, as industry enjoys positive capital flows for second month in a row

Outflows

Investors continued to add more money to hedge funds last month – after pouring more than USD9 billion into the industry in July – as the sector recovers from a bruising four-month run of withdrawals and allocators drift back to the sector, new industry data shows.

Altogether, hedge funds attracted some USD7.36 billion of positive inflows in August, according to eVestment, whose latest flows report highlighted an “impressive” breadth of allocations despite a reduced volume of asset movement compared to recent months.

But it also warned of a “rocky” outlook, with investor sentiment hinging on how successfully hedge fund strategies of all stripes can seize on what it calls the “large” opportunity set ahead.

Overall, industry capital flows remain negative on a year-to-date basis. Allocators have pulled out some USD37.59 billion from hedge fund strategies since the start of 2020 after the coronavirus crisis sent investors fleeing.

But recent movements hint at a burgeoning reversal of fortunes, with the majority of strategies tracked by eVestment recording asset inflows last month, according to Peter Laurelli, global head of research.

Industry-wide assets under management now total USD3.197 trillion, according to eVestment data.

Macro-focused hedge fund managers brought in the biggest aggregate inflow last month, at USD2.84 billion, but also the largest volume of asset movement both in and out during August. They also have the most ground to make up out of any hedge fund strategy, eVestment said, as flows remain in the red to the tune of USD13.26 billion YTD.

Managed futures strategies attracted USD1.82 billion – their third consecutive month of inflows. But eVestment warned that recent losses among trend-following funds may weigh on investor sentiment, while net outflows YTD in managed futures stand at USD5.84 billion.

Meanwhile, event driven hedge funds have added some USD6.21 billion in investor capital in the eight-month period since the start of the year, with investors pledging USD1.75 billion in August.

“August was generally a broadly positive month for the hedge fund industry, though there were pockets of large redemptions clouding the picture,” Laurelli observed.

“The proportion of funds with inflows was nearly 60 per cent, which would make August 2020 the second most broadly positive month for hedge fund asset flows in the past five years.”

On the downside, investors yanked USD1.88 billion out of long/short equity strategies last month, and over the course of 2020, their redemptions here have reached USD12.36 billion. 

While multi-strategy funds were just barely negative for flows in August, with investors pulling out USD360 million from this sector, those outflows were highly concentrated - and the majority of multi-strategy funds appeared to have inflows during the month.

“The future, however, appears as rocky as any time in recent memory,” eVestment’s report said. “How investors react will be driven by how managers perform, and the breadth of the opportunity set they are presented. At the very least, it is safe to say the latter will be large.”