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Capital flows into hedge funds narrowly positive in quarter three

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After four consecutive quarters of net withdrawals, hedge funds recorded a net asset inflow in Q3 2009, with investors adding USD1.1bn in new capital during the period, according to data released by Hedge Fund Research.

Hedge fund performance, as tracked by the HFRI Fund Weighted Composite Index, climbed 6.9 per cent in Q3, increasing year-to-date returns to 17.1 per cent through September.

These performance-based gains vaulted hedge fund industry assets to USD1.53trn in Q3 09, up from USD1.43trn at Q2.

Over two-thirds of all hedge funds experienced capital inflows in Q3, accounting for over USD38bn in new assets. However, these gains were largely offset by over USD37bn in capital outflows from investor redemptions and liquidations, resulting in a net inflow of only USD1.1bn.

The Q3 09 capital inflow ended a 12-month period in which investors withdrew USD330bn from the hedge fund industry. In contrast to the first half of 2009, redemptions were concentrated in specific strategies. Hedge funds in the relative value arbitrage and event driven space experienced a total net redemption of more than USD5.7bn during the period.

Meanwhile, over USD6.8bn in net new capital was allocated to equity hedge and macro strategies. Relative value, event driven, and equity hedge funds have exhibited strong performance thus far in 2009, each up more than 20 per cent year-to-date.  Macro funds, following an impressive 4.8 pe rcent gain in 2008, have gained just 4.2 per cent in 2009.

Investors continued to withdraw assets from funds of hedge funds during Q3, but at a reduced rate. Fund of fund redemptions totalled only USD3.2bn in Q3, compared to a cumulative withdrawal of more than USD180bn in the previous four quarters. In contrast to single-manager strategies, over 73 per cent of all fund of funds experienced net outflows for the quarter.

“The most recent data suggests that the sentiment of hedge funds investors has improved from historical lows, but investors remain selective about fund strategy and exposure characteristics,” says Kenneth Heinz, president of Hedge Fund Research. “Sharp performance dispersion across funds, strategies and timeframes in the last five quarters has contributed to a more tactical allocation environment where both expectations and positioning can vary widely from one investor to the next.”

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