Hedge funds regain lustre as assets hit record high
Returns were positive for eight months in a row in longest winning streak since 2004
Hedge funds are regaining their lustre after recording their eighth consecutive monthly gain in returns with assets under management rising to a record $3.1tn.
This is the longest winning streak since early 2004, according to Hedge Fund Research.
The withdrawal of money from hedge funds also came to a halt in the second quarter after six quarters of outflows, added HFR.
It suggests these groups are back in favour after several lacklustre years, where fund managers blamed anything from monetary policy to crowded trades for their poor performance.
Returns have continued to improve in 2017 as equity markets have rallied. Some managers have also acquiesced to investor complaints over high fees in the so-called “2 and 20” structures once charged in the industry.
HFR’s Fund Weighted Composite Index, which tracks hedge funds across all strategies, was up 3.6 per cent so far this year, compared with 5.4 per cent for all of 2016, and a drop of 1.1 per cent in 2015.
Money is also pouring into computer-driven strategies, which despite poor performance in recent years are seen as a hedge against a market downturn.
That is because many quantitative funds performed well in the immediate aftermath of the financial crisis and they are seen as having a low correlation to equity markets.
HFR’s systematic macro index fell 2.39 per cent so far this year, and declined 1.37 per cent last year and 2.4 per cent in 2015. Yet those funds received $3.1bn in inflows in the second quarter.
Equity strategies did even better, gaining $3.8bn in new investments in the same period. Event-driven funds were among the biggest losers, with $3.8bn in redemptions.
Activist funds have also mounted a comeback, led by funds including Dan Loeb’s Third Point and Mick McGuire’s Marcato Capital. HFR’s activist index was up 4.3 per cent in the first half, while the equity index was up just over 6 per cent.
Hedge funds received $6.7bn in new investments in the second quarter, compared with $5.5bn in redemptions in the first, according to HFR.
However, the number of hedge funds and funds that invest in hedge funds has been steadily falling since 2014, from a high of 10,142 to 9,691 in the second quarter.
The number of hedge fund closures also outpaced new fund launches in the first quarter for the sixth consecutive quarter.