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Hedge funds gain USD3.4bn in September 2012

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The hedge fund industry took in USD3.4bn (0.2 per cent of assets) in September, building on a USD7.7bn inflow in August, according to a report by BarclayHedge and TrimTabs Investment Research. 

Based on data from 3,004 funds, theTrimTabs/BarclayHedge Hedge Fund Flow Report estimated that industry assets stood at USD1.8trn in September, down 25.8 per cent from the June 2008 peak of USD2.4trn.

“The hedge fund industry saw net inflows for the second month in a row in September, which was a notable improvement from earlier this year,” says Sol Waksman, founder and president of BarclayHedge. “Year to date outflows shrank to USD1.1bn in September from USD4.5bn in August.”

While the flow picture is improving, the hedge fund industry continues to underperform popular benchmarks, gaining 1.8 per cent in September while the S&P 500 rose 2.4 per cent. For the first nine months of 2012, the industry earned a 6.1 per cent return while the S&P 500 rose 14.6 per cent. The 12-month spread is even wider: the hedge fund industry gained 7.8 per cent from October 2011 to September 2012, while the S&P 500 rose 27.3 per cent.

In a separate research note, TrimTabs reported that when ranked by performance, the top 10 per cent of hedge funds returned a median 27.8 per cent from January 2011 through September 2012, substantially outdistancing the S&P 500’s 14.6 per cent rise, while the bottom 10 per cent of all funds lost 25.6 per cent. The top-performing funds also attracted significant inflows from hedge fund investors.

“The top 10 per cent of best-performing funds attracted more than USD10bn in net inflows, while the bottom 10 per cent of funds saw outflows of USD6.4bn,” says Charles Biderman, founder and chief executive of TrimTabs. “The hedge fund industry had net inflows of USD49.1bn from January 2011 to September 2012, which leads us to believe the top funds accounted for 21.4 per cent of the hedge fund industry’s inflows.”

The Hedge Fund Flow Report noted that over the past 12 months, equity long only funds earned a 15.2 per cent return, the best performance among the 13 major hedge fund categories that TrimTabs and BarclayHedge track. Despite outperforming the hedge fund industry by more than seven percentage points, these funds saw outflows worth USD4.1bn.

“Given that the top-performing equity hedge fund categories cannot seem to outperform a low-cost equity index fund, it’s no surprise that investors are avoiding the higher fees of equity hedge funds,” Biderman says.

Biderman says hedge fund investors seem to be avoiding risk across the board, settling for middling-to-low returns. 

“All 13 hedge fund categories had positive returns in the past 12 months,” Biderman says, “but only the top three — fixed income, multi-strategy, and macro — had net inflows.”

This caution yielded lower returns: 8.3 per cent for fixed income, (fifth of 13), 3.8 per cent for multi-strategy (11th), and 3.6 per cent for macro funds (12th).

Among the eight global regions tracked in the report, Continental Europe funds had the highest inflows in September at 1.5 per cent of assets, while Canadian funds had the highest year to date flows (-0.6 per cent of assets) and Japanese funds had the strongest 12-month flows (1.4 per cent of assets). All eight regions posted gains in September, and seven posted year to date and 12-month gains. 

Meanwhile, the October 2012 TrimTabs/BarclayHedge Survey of Hedge Fund Managers found that while hedge fund managers were most likely to be neutral on the S&P 500 for November, bearish sentiment dipped to a 12-month low. Conducted in late October, the survey of 73 hedge fund managers also found that most see less than a 50/50 chance of a recession in Q1 2013 in response to who wins the US presidential election.

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