HFR: HFs see first quarterly net inflow in two years

While year-to-date performance figures in the hedge fund industry average 0.8%, industry inflows are on the rebound, with the third quarter marking the first net inflow into the industry since the 2018, according to data provider HFR. Investors such as funds of hedge funds have also done well, with gains of over 4% in the third quarter, and year to date are up over 2% -- showcasing the power of manager selection. Analysts point to the strong performance of various hedge fund strategies through the coronavirus pandemic volatility and investors positioning for continued uncertainty around both the virus and the upcoming U.S. elections. Net inflows of $13 billion were reported in the third quarter, according to HFR. Inflows were greatest among macro and relative value arbitrage strategies, as investors positioned for continued macroeconomic uncertainty and powerful trends global financial markets with an estimated $7.2 billion flowing into macro strategies. Macro assets overall total $579 billion with inflows split nearly equally between CTA strategies and uncorrelated currency strategies. Quantitative, trend following systematic diversified CTA strategies saw inflows of $3.2 billion during the last quarter, HFR added. Currency strategies saw $3.1 billion in fresh capital. Fixed income-based relative value arbitrage strategies were allocated an estimated $5.5 billion of new investor capital in the last quarter, increasing total relative value arbitrage capital to $903.1 billion, the industry's second largest strategy area of capital. Inflows were led by credit relative value arbitrage multi-strategy funds, which received $14.3 billion of net asset inflows, bringing total AUM to the relative value multi-strategy segment to $531.9 billion. "Investors allocated new capital to hedge funds in 3Q as a result of both defensive outperformance through the coronavirus-driven volatility in early 2020, as well as opportunistic gains through the uneven financial market recovery in the second and third quarters," stated Kenneth Heinz, president of HFR. "Institutions globally are making forward-looking allocations to hedge funds, anticipating and positioning for the near-term uncertainties of both the virus and the US election, as well as intermediate-term macroeconomic uncertainties of the US, European and Asian economies into 2021.” He said that hedge fund strategies have demonstrated “powerful, opportunistic and uncorrelated performance” throughout 2020 are likely to lead continued industry growth into 2021. The industry today totals $3.31 trillion in assets. Inflows were led by the industry's largest firms with those managing greater than $5 billion receiving an estimated $11.2 billion in net asset inflows. Mid-sized firms managing between $1 billion and $5 billion experienced a small outflow of $810 million, while firms managing less than $1 billion received inflows of $2.6 billion.

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