Skittish investors gave hedge funds their smallest first-half inflow in five years, as volatile markets and weak returns take their toll on investor confidence.
Hedge funds added just $29 billion in new capital in the first half, according to Hedge Fund Research, just one-quarter of the $118 billion inflow posted in the first half of 2007. Allocations to hedge funds totaled $12.5 billion in new money in the second quarter, the lowest quarterly inflow in more than two years. Fund of hedge funds added $9 billion on the quarter.
Despite the lackluster fundraising, positive performance pushed hedge funds up $56 million during the quarter. Hedge funds now manage some $1.931 trillion, according to HFR, with funds of funds managing $825.9 billion.
Relative value funds saw investors flee during the second quarter, pulling a total of $3.6 billion from the strategy. Hardest hit were multi-strategy relative value funds, which saw $8 billion fly out the door.
By contrast, macro and short-selling hedge funds enjoyed investor support.
“In some cases, investors allocated opportunistically to areas of weak performance (emerging market and growth equity), while in others they reduced capital in response to negative performance (relative value) and allocated to areas of strength (macro),” Kenneth Heinz, president of HFR, said.
Indeed, macro funds enjoyed a nearly $7 billion inflow during the quarter, especially in discretionary thematic and systematic diversified strategies, which took in $6.2 billion and $5.2 billion, respectively. Fundamental growth funds also had a big quarter, adding $6.7 billion.
Investors were also following performance into new hedge funds in the second quarter. New firms outraised existing firms, by $6.7 billion to $5.8 billion.