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Q2 hedge fund inflows surpass Q2 2014 levels; AUM at USD3.118 trillion

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Total hedge fund assets decreased 1.57 per cent in June 2015, bringing the industry’s total assets under management to USD3.118 trillion, according to eVestment’s latest Hedge Fund Asset Flows report.

Investors added USD12.1 billion of new capital to the industry in June, while performance decreased AUM by an estimated USD61.9 billion. 

With June’s USD12.1 billion inflow, investors added an estimated USD48.6 billion into hedge funds in Q2, the second largest quarterly inflow since Q3 2009, and USD75.0 billion in H1 2015. YTD inflows are below H1 2014 inflows of USD97.4 billion, but they are the second largest two quarter span of inflows since the two quarter period ending Q4 2009. 

Although overall industry H1 2015 inflows were more than USD20 billion below H1 2014, because investors redeemed an estimated USD9.1 billion in H2 2014, they are not far below full year 2014 inflows. What appeared to cause redemptions late in 2014 were elevated losses mid-year. This is important because of the elevated asset-weighted losses seen in June. Performance losses, however, were concentrated to macro and managed futures in Q2 2015. While the macro and managed futures universes accounted for USD18 billion of H1 2015 inflows, the overall industry grew significantly in 2014 while both strategies experienced net redemptions. Should managed futures and macro strategy flows turn negative in H2 2015, as a result of recent losses, that does not necessarily doom the industry’s H2 2015 net investor flows. 

After January’s spike in redemptions, investors have steadily been allocating to hedge funds focused on equity markets. June’s inflow of USD4.6 billion brings Q2 inflows to USD17.3 billion. Inflows were higher in both Q1 and Q2 2014, but Q2’s investor interest is a positive sign of investor sentiment after the prior two quarter’s mixed flows. 

Event driven fund flows have been disappointing in H1 2015. June’s outflow of USD1.2 billion shifted Q2 and H1 flows negative. 2014 performance appears to be a primary reason for what, on the outside, looks like mild investor interest. Funds with outflows in 2015 returned an average of only 0.1 per cent in 2014, while those with inflows in 2015 returned 7.2 per cent in 2014. It is possible the event driven space, after taking in nearly USD43 billion in 2014, had become saturated and H1 2015 has been a period of realignment. 

Multi-strategy flows continued their positive streak in June. The universe had one month of investor outflow in the last two years. June’s inflow of USD3.7 billion brings YTD inflows to USD38.4 billion, well above H1 2014 (USD30.3 billion) and behind only H1 2007 in terms of highest level of H1 multi-strategy investor interest on record. 

Managed futures flows were positive again in June, the universe’s sixth consecutive month of inflows. The current stretch of inflows, during which the strategy has gained USD14.2 billion in new capital, follows a string of twenty-eight months of redemptions in all but one month. Importantly, June’s asset-weighted performance losses for the managed futures universe were among their worst recorded since eVestment began tracking figures in 2003. 

Credit fund inflows slowed in June, but remained positive. June also brought asset-weighted performance declines, however the universe of credit strategies has enjoyed positive investor sentiment despite elevated losses in H2 2014. 

Emerging market-focused fund flows were positive in June and in each month of Q2. Investors allocated an estimated USD1.1 billion in June and USD2.9 billion in Q2, the universe’s largest quarterly inflow in a year. 

Investor interest in exposure to Asia, and China in particular, is evident in reported data. The two EM hedge funds with the largest inflows in June are China-focused strategies, and more than half of the largest fifteen asset gainers in June are China-focused. The other dominant EM-focused asset gainers in June were funds investing in EM credit market markets. 

Exposure to Europe continues to be a prevailing desired theme among investors. Funds focused on European markets had the largest inflows of any specific regional focus in June and Q2. This has been a benefit to firms operating in Europe which have received a relatively large portion of new assets in 2015. 

Growth among firms domiciled in Asia has been strong in 2015. The Asia-based hedge fund industry received USD3.1 billion in new assets in June and USD7.0 billion in Q2. The Q2 inflow was the largest quarterly net inflow for the Asia-based hedge fund industry since at least 2003. 

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