The hedge fund industry posted an estimated inflow of USD11.3bn or 0.7 per cent of assets in August 2010, the largest inflow since February after redeeming a total USD3.1bn in June and July, according to TrimTabs Investment Research and BarclayHedge.
“Hedge fund managers exhibited caution in August and it served them well,” says Sol Waksman, founder and president of BarclayHedge. “The industry outperformed the market by a large margin. While the S&P 500 sank 4.7 per cent, hedge funds posted a negative return of less than one per cent.”
Hedge fund investors have grown hungrier for risk. Emerging markets funds posted an inflow of USD2.5bn (1.3 per cent of assets) in August following three straight monthly redemptions.
Macro funds posted an inflow of USD2.1bn (2.3 per cent of assets), the largest inflow since June 2008.
Meanwhile, commodity trading advisers posted an inflow of USD2.2bn (1.0 per cent of assets), the fifth straight inflow as well as the 12th in 15 months.
In contrast, funds of hedge funds redeemed USD2.3bn (0.4 per cent of assets), the sixth outflow in nine months.
“We suspect hedge fund managers might invest aggressively in the current quarter,” says Vincent Deluard, executive vice president at TrimTabs. “The fresh cash flowing into the industry needs to be put to work. Further, about a third of managers are sitting on a year-to-date return of less than one per cent, so they need to end the year with a bang in order to collect fat performance fees. Additionally, margin debt is relatively low and being able to borrow for virtually nothing provides a strong incentive to lever up.”
Like retail investors, hedge fund investors continue to flock to bonds. Fixed income hedge funds posted an inflow of USD2.3bn (1.4 per cent of assets) in August, the sixth inflow in seven months. Fixed income funds boast a year-to-date return of more than nine per cent, far and away the best performance of any hedge fund strategy.