Hedge funds poised to outperform 2020 “by a wide margin”, as investor flows swell industry coffers further

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Hedge funds are on track to comfortably outperform their 2020 showing this year, with strong strategy returns and continued capital inflows boosting industry coffers to almost USD3.6 trillion in the run-up to 2021’s midway point. 

New research published by eVestment shows hedge funds overall gained 1.48 per cent on average during May. This has helped drive 2021’s year-to-date returns to 9.05 per cent. With hedge funds’ full-year returns for 2020 finishing at some 11.05 per cent, according to eVestment data, the industry is in now fine form approaching the second half of the year. 

Such strong gains appear to be renewing investor faith in the sector, with allocators pouring an extra USD12.01 billion into hedge funds during May. Those inflows have brought year-to-date new capital to USD39.12 billion, which has helped increase total industry assets under management to USD3.57 trillion as of the end of May. 

“Barring any major unforeseen market, natural or geo-political disasters – or pandemics – the hedge fund business this year is poised to outperform 2020 by a wide margin,” eVestment said on Thursday. 

Overall, close to two-thirds – 62 per cent – of hedge funds reporting to eVestment have drawn new capital in 2021, the highest percentage seeing net inflows since May 2016, as the prevalence of large net outflows continues to dry up.  

Among the main strategy classes, multi-strategy hedge funds continue to attract the strongest interest in 2021, with investors pledging USD4.49 billion in May, which has brought net inflows overall this year to more than USD20 billion. 

“Net flows for these funds have been positive in seven of the past eight months,” said Peter Laurelli, eVestment’s global head of research. “At USD20.06 billion YTD, this segment easily has seen more money come in on a net basis in 2021 than any other general strategy.” 

Elsewhere, macro funds – which make bets on macroeconomic events using equities, fixed income, currencies, commodities, and futures markets – drew in USD3.48 billion last month, bringing year-to-date inflows to USD5.62 billion. 

“Money began to come in to macro funds toward the end of 2020 and except for a blip of outflows in March, the segment is seeing healthy allocations,” Laurelli observed. 

On the flipside, investors yanked USD1.19 billion out of long/short equity strategies during May – a sector Laurelli described as the “one major outlier” last month. But while allocators have pulled out some USD9.40 billion from long/short equity hedge funds in 2021, Laurelli said the withdrawals remains largely concentrated among a handful of underperformers, adding the wider long/short equity hedge fund universe is more positive. 

Performance-wise, activist hedge funds lead the pack this year, with last month’s 2.02 per cent gain boosting their year-to-date returns to an eye-catching 26.30 per cent.  Elsewhere, long/short equity (12.11 per cent), distressed (11.18 per cent), and event driven (10.71 per cent) have all surged into double-digit territory since the start of the year, eVestment numbers show. 

Macro managers were May’s best performers on a monthly basis, rising 2.25 per cent to put their January-to-May returns at 5 per cent. 




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Hugh Leask
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Editor, Hedgeweek