Hedge fund interest returning, research suggests

Hedge fund interest turned positive in March as investors renewed their appetite for the investment vehicle.

Research by eVestment shows that after a “rough” 2016, hedge funds are making a comeback as investors allocated $15.7 billion in new money to funds in March 2017.

The company’s Hedge Fund Asset Flows Report shows that March inflows were the most positive for 20 months with total industry assets-under-management now standing at $3.107 trillion.

The resparking of interest could be driven by investors’ acknowledgement of strong hedge fund performance at the back end of 2016 and this year so far, coupled with a desire to hedge against future market turbulence due to geopolitical and business uncertainty.

The report also found that:

Macro hedge funds, up $7.22 billion in March, had their largest monthly inflow since January 2010 in March.

For Q1, Macro funds are up $11.46 billion. Investors are showing clear demand for strategies which focus on thematic approaches to major public and derivative markets.

After several months of redemption pressures on the European hedge fund industry, inflows finally outpaced outflows in March.

Asia-focused funds and funds domiciled in Asia were among the big losers in March. Asia-focused funds saw assets fall by $1.75 billion in March, and now down by $2.67 billion for Q1, while Asia-domiciled funds saw assets fall by $0.81 billion, almost wiping out positive AUM growth for the quarter.

“For the hedge fund industry to be successful and grow assets outside of performance gains, it must offer investors something they cannot access elsewhere at a cheaper cost,” eVestment said.

“Additionally, market conditions must be such that those offerings are attractive, regardless of prior or recent performance. This is exactly what we’re seeing after one quarter of 2017 is in the books.

“The large interest in macro funds, managed futures, and quantitative equity (both directional and market neutral) are indications that investors are indeed showing preference for hedge fund products which either offer alternative approaches to public equity markets, offer thematic approaches to global markets, or offer systematic approaches to these same global public and derivative markets.

“Whether the industry can ultimately thrive in a world where multi-strategy and event driven funds appear to not be in high demand has not been proven in the past, but one thing about 2017 which appears clear is that it is shaping up to be unlike other years in recent memory.”

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