Hedge funds enjoyed modest net inflows in the third quarter. But after four consecutive quarters of net outflows, even a paltry $1.1 billion in new capital for the industry is cause for breaking out the champagne.
Over two-thirds of hedge funds took in new money during the third quarter, according to Hedge Fund Research. The unlucky third, however, were disproportionately punished by investors. The outflows at the latter totaled more than $37 billion, while the inflows at the former were more than $38 billion. Over the 12 months preceding the second quarter, investors yanked some $330 billion from the industry.
Still, the hedge fund industry was $100 billion larger at the end of last quarter than at the end of the second, thanks to continuing strong performance for hedge funds. The third quarter was the industry’s best in terms of performance in more than a decade, pushing total industry assets to $1.53 trillion.
Funds of hedge funds have continued to lose assets, HFR data shows. Nearly three-quarters of funds of funds suffered outflows in the third quarter, but those losses totaled just $3.2 billion. Over the previous four quarters, investors withdrew $180 billion from funds of funds.
“The most recent data suggests that the sentiment of hedge funds investors has improved from historical lows, but investors remain selective about fund strategy and exposure characteristics,” said Kenneth Heinz, HFR’s president. “Sharp performance dispersion across funds, strategies and timeframes in the last five quarters has contributed to a more tactical allocation environment where both expectations and positioning can vary widely from one investor to the next.”