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“Flows are doubtless following performance,” explains Sol Waksman, founder and President of BarclayHedge. “The Barclay Hedge Fund Index posted an increase in each of the past seven months, and it didn’t hurt that February is historically the best month of the year for new hedge fund subscriptions. Meanwhile, public pension plans — many of which are underfunded — are devoting much more capital to the hedge fund space.”
Meanwhile, the record inflow in February might bode ill for the performance of hedge funds in the next year. The increase in the Barclay Hedge Fund Index in the 12 months following an inflow of $25+ billion averages just 2.6%. In contrast, the average increase in returns in the 12 months prior to a $25+ billion inflow clocks in at a handsome 14.2%.
“Investors of all stripes tend to chase fat returns, and investment vehicles of all kinds tend to perform relatively poorly once everyone under the sun is enamored of them,” explains Vincent Deluard, Executive Vice President of Research at TrimTabs. “Inflows are historically heaviest when asset prices are dear, while some strategies constrain managers. There are only a handful of deals on which a merger arbitrage fund can capitalize.”
Funds of hedge funds hauled in $7.3 billion (1.3% of assets) in February, the heaviest inflow since March 2008, while commodity trading advisors (CTAs) raked in $7.5 billion (2.5% of assets), the heaviest inflow since June 2009. Meanwhile, hedge fund investors are exhibiting a stronger appetite for risk. All six equity hedge fund strategies received assets in February.
“Competitive currency depreciations, soaring commodity prices, disasters in Japan, revolution and war in the Middle East, and debt crises in Europe make for a tragic and bearish landscape,” notes Deluard. “Market participants nonetheless keep peppering equities with cash, and that might explain why market corrections have proven so shallow and brief.”
The TrimTabs/BarclayHedge database tracks hedge fund flows on a monthly basis. The TrimTabs/BarclayHedge Hedge Fund Flow Report provides detailed analysis of these flows as well as relevant topical studies. Click here for further information.
BarclayHedge is a leading hedge fund data vendor and one of the foremost sources for proprietary research in the field of alternative investments. From its origin as a research specialist and performance measurement firm, BarclayHedge has developed complete client services as a publisher, database and software provider, and industry consultant.
TrimTabs Investment Research is the only independent research service that publishes detailed daily coverage of U.S. stock market liquidity--including mutual fund flows and exchange-traded fund flows--as well as weekly withheld income and employment tax collections. Founded by Charles Biderman, TrimTabs has provided institutional investors with trading strategies since 1990. For more information, please visit us here.
