Hedge funds cement successful start to 2021 as more investor money pours into industry

Cash on tap

Hedge funds attracted USD6.39 billion of new capital last month as investors piled into a wide variety of strategy types, particularly macro and managed futures, according to new industry data from eVestment.

Managers running macro and managed futures strategies were the big winners in terms of allocator appetite in January, eVestment said on Thursday, as long/short equity funds lost money – a shift which could hint at potential investor concerns over the state of equity and credit markets in early 2021.

January’s positive inflows to the industry follows three consecutive years of annual outflows, during which time around USD200 billion exited hedge funds’ coffers.

Macro managers drew in USD3.07 billion of new money last month, while managed futures added USD2.15 billion in investor capital.

Peter Laurelli, eVestment’s global head of research, described the flows as “welcome news” to both strategies.  He noted the allocation numbers mark a reversal in fortunes, as macro funds suffered negative flows over the past two years, and managed futures saw outflows over the past three years.

In all, about 50 per cent of all hedge funds reporting to eVestment recorded net inflows last month. Directional credit, multi-strategy and event driven funds each pulled in USD1 billion in new money, while convertible arbitrage (up USD230 million) and distressed-focused strategies (USD140 million) were marginally positive for the month.

On the flipside, though, long/short equity hedge funds suffered net outflows over the course of January, with allocators yanking some USD3.08 billion out of these strategies. Market neutral equity registered outflows of USD220 million last month, while investors also withdrew USD1.61 billion from relative value credit.

“Looking at net flows over three of the last four months, you would think there was very little interest in these products, but that’s just not the case,” Laurelli said of the long/short equity withdrawals.

“A bulk of redemptions over this window have been from a handful of products which are significantly underperforming. Outside of this group, the flow picture in January was decent for long/short equity managers.”

The data comes as a survey published by Barclays shows investors are preparing to add up to USD30 billion of new capital to hedge funds this year.

The bank’s ‘2021 Global Hedge Fund Industry Outlook and Trends’ report suggested a “breakout year” for the industry, with 41 per cent of all investors planning to increase their hedge fund exposure this year.

Still, eVestment maintained a somewhat cautious tone on January’s figures, pointing to “pockets of pain” being felt in certain segments.

“It is only January and net flows tend to be positive in January. No matter how much we may want the data to be absolutely positive, it’s not,” the monthly commentary noted.

“Long story short, and no pun intended, the industry is off to a pretty good start in 2021. Not everyone is feeling it, especially within isolated credit and long/short equity segments, but beyond that, there has been a fair amount of success to start the year.”