Winners and losers: Hedge fund investor flows turn positive, but capital allocations “not felt by all”

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Investors are adding more money into hedge funds this year than they are pulling out – but new industry data points to continued dispersion across the strategy spectrum, with managed futures funds attracting new capital while macro and long/short equities managers suffer sharp outflows.

Investors added USD1.80 billion to hedge funds during July, according to eVestment research, which marks a return to positive flows after allocators yanked some USD10.99 billion from the industry in June.

Overall, hedge funds have attracted USD27.80 billion in new capital since the start of 2021, which compares more than USD59 billion of investor outflows annually in 2020.

eVestment research pointed to a considerable degree of dispersion across strategy flows during July, with managed futures continuing to draw more investor assets, while macro and long/short equity funds suffered outflows.

Managed futures funds added USD1.67 billion of new assets in July, which has brought their year-to-date inflows to USD9.25 billion in total. Overall, the strategy has registered six positive months out of seven so far this year, with more than 50 per cent of funds enjoying inflows.

Observing the ramp-up in flows to trend-followers, eVestment said that not since 2015-2016 have investors appeared “truly interested in expanding within the segment”.

“All it took was a really difficult global economic environment plagued by a pandemic,” eVestment added. “Another good sign is that investors are likely happy with their recent allocations as returns have been fairly good among those with the largest net inflows this year. Funds with the ten largest net inflows all have positive returns this year and their average so far is almost 9 per cent.”

Elsewhere, investors weighed in with some USD1.55 billion to relative value credit hedge funds and also pledged USD1.45 billion to multi-strategy managers, with the latter having now drawn more than USD20 billion in inflows since the start of 2021. Convertible arbitrage strategies meanwhile drew USD550 million.

On the flipside, investors pulled more than USD1.5 billion out of macro strategies during July, which came on the heels of some USD5.5 billion of outflows in June.  eVestment said macro outflows appear to be performance-driven, with the five largest net outflows coming from funds returning an average of below -5 per cent. 

Allocators also withdrew USD850 million from market neutral equity funds, USD790 million from long/short equity managers, USD780 million from directional credit and USD390 million from event driven funds.

Year-to-date, long/short equity hedge funds have registered outflows of almost USD13 billion. However, eVestment noted that outflows among long/short equity managers were reduced for the second consecutive month.

“This year continues to feel like a decent one for the industry, but it’s absolutely not being felt by all, or even by the majority for that matter,” Peter Laurelli, eVestment’s global head of research, said of July’s data.

“Wide-felt success hasn’t defined the hedge fund industry for a long time, but this year has shown some improvements in the breadth of success metrics. With a global landscape that has continued to highlight uncertainty, it would be surprising to see interest in the industry shift meaningfully in the second half of 2021.”

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Hugh Leask
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Editor, Hedgeweek