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Hedge fund flows rebound in October, as new data suggests growing capital concentration

Updated: Apr 9

New industry data published by eVestment shows allocators added USD7.22 billion to the industry overall during October, a strong start to the final quarter of 2021 which helped partially offset the USD8 billion which was pulled out of hedge funds during September.

Multi-strategy hedge funds and managed futures strategies were the big winners from an allocations perspective during the month, while equity long/short managers returned to negative territory having enjoyed two consecutive months of positive inflows.

Noting that October inflows are not the norm, Peter Laurelli, eVestment’s global head of research, said the strong numbers underlines the overall asset-raising success the hedge fund business has seen for most of 2021.

“You would have to go back to 2010 to find the last October where there were any meaningful net inflows for that month,” Laurelli said.

However, he cautioned that although the data suggests on the surface that the industry is in strong health, there are signs of a slowdown in the breadth of products receiving “meaningful” new allocations, with flows becoming increasingly concentrated among a handful of funds and strategies.

“One area we watch is the concentrations of net flows and it’s here where we’re seeing deviations from themes present at the beginning of the hedge fund industry’s current capital-raising renaissance,” Laurelli said.

Specifically, while 53 per cent of funds reported net inflows to eVestment in October, the breadth of products getting inflows of more than 2 per cent of their AUM is low and has been for a fifth consecutive month.

“The bottom line is success is being felt less broadly than several months ago. And while this may end up being nothing, it’s worth noting.”

Overall, multi-strategy managers led the way in October, drawing some USD3 billion of new capital in October, which put year-to-date new inflows at USD24.67 billion – the top performer across the industry. But eVestment noted that allocations remain concentrated, with fewer than half of funds (45 per cent) reporting net inflows since the start of 2021.

Similarly, managed futures and trend-following strategies attracted USD2.17 billion of new investor capital in October. With this sector registering eight consecutive months of positive inflows so far in 2021, year-to-date flows now stand at USD13.10 billion.

“Large managers have absolutely attracted the bulk of new assets in 2021, but nearly 60 per cent of reporting managers’ data indicate net inflows for the year, so success is being widely felt along with the largest funds’ success,” eVestment observed of managed futures’ recent good fortune.

“For the most part, this seems like a win-win year for both managers and investors. The 10 largest reporting funds in this space have outperformed the average of any other strategy’s ten largest average returns and only activist managers are producing meaningfully better average returns this year on an overall strategy basis.”

On the flipside, investors yanked some USD1.57 billion out of long/short equity hedge funds, traditionally the cornerstone of the global hedge fund industry, during October. eVestment noted the redemptions were large and concentrated within a small number of funds, which partially masked an overall more positive outlook for sub-strategy.

Performance further boosted hedge funds’ aggregate AUM in October, bringing overall industry AUM to USD3.637 trillion, according to eVestment metrics, while year-to-date investors have pledged some USD34.33 billion in new money to hedge funds around the world.

Source: Hedgeweek

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