Hedge Fund Inflows Going To Largest Managers

Jul 20 2010 | 10:23am ET

Hedge funds saw net inflows of $9.5 billion in the second quarter, with the lion's share of that new money—$8.8 billion of it—going to firms with more than $5 billion in assets under management, according to data provider Hedge Fund Research. Those large firms now manage approximately 60% of total industry capital.

But while the money poured in from investors, hedge funds themselves—hit with volatile markets—had a rough ride. The HFRI Fund Weighted Composite Index posted a decline of 2.5%, offsetting first quarter gains. Total hedge fund industry capital ended the most recent quarter at $1.65 trillion, down from $1.67 trillion the prior quarter.

Following strong performance in 2009, hedge funds declined by 0.21% in the first half of this year, as gains in credit sensitive strategies such as arbitrage and event driven were offset by losses in equity hedge and macro funds.

Capital inflows in the first six month's of the year totaled $23.2 Billion, a figure approximately 20% of the record inflows in the first half of 2007.

Fund Of Funds Losing Favor

Money continues to flow out of fund of hedge funds, which saw investors pull $2 billion in the second quarter. Only 31% of fund of funds experienced inflows in 2Q10, compared to 59% of all single manager funds, according to the Chicago-based research firm.

“The current environment in the hedge fund industry continues to be dominated by investor preference for robust fund infrastructure, encompassing enhanced liquidity and transparency,” said Ken Heinz, president of Hedge Fund Research. “Investors have exhibited strong interest in products such as UCITS III-compliant funds and separately managed accounts, as well as in the larger funds in the industry. Further growth in transparent investment vehicles and greater clarity on global financial reform legislation will continue to shape the landscape of the alternative investment industry for the next decade.”

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