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Hedge fund assets sink to lowest level since November 2009

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The hedge fund industry posted an estimated outflow of USD2.9bn, or 0.2 per cent of assets, in July 2010, the second straight outflow as well as the third in four months, according to TrimTabs Investment Research and BarclayHedge. 

Industry assets sank to USD1.53trn, the third straight decrease and the lowest level since November 2009.

“Hedge funds posted a positive return in July, but they did not regain the ground they lost in May and June,” says Sol Waksman, founder and president of BarclayHedge.  “They also underperformed the S&P 500 by five percentage points.”

Commodity trading advisers posted a heavy inflow of USD3.8bn, or 1.7 per cent of assets, in July, their fifth straight inflow as well as the 12th in 14 months. In spite of the fact that CTA returns are down one per cent so far this year, they are still seeing inflows. 

Meanwhile, funds of hedge funds redeemed or 0.1 per cent of assets, in July.

“Funds of funds are in a bad way,” says Vincent Deluard, executive vice president at TrimTabs. “They posted only five inflows in the past 25 months, and assets sit at the lowest level since February 2005. Investors continue to abandon them because they have underperformed hedge funds by fourteen percentage points since March 2009.”

Hedge fund investors were risk averse in July. Emerging markets funds redeemed USD1.9bn, or 1.0 per cent of assets, their third straight outflow. In contrast, fixed income funds posted an inflow of USD1.2bn, or 0.8 per cent of assets, the fifth inflow in six months. Investors are chasing standout performance.

“Fixed income funds posted a negative return in only one of the past 19 months, and they are up 6.93 per cent for the year — far and away the best return of any hedge fund strategy,” says Deluard. “Little wonder that investors are drawn to them like moths to a flame.”

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