Hedge funds' net inflows rise by $10.6 billion in July

Hedge fund assets increased by $10.6 billion in July, rising for a third straight month, as managers trading shares benefited from global stock market gains, according to Eurekahedge.

Net inflows into the industry totaled $2.1 billion, while gains through performance were $8.5 billion, bringing total assets under management to $1.35 trillion, the Singapore-based research firm said in a report posted on its website.

Hedge fund managers are making a comeback after suffering their worst year on record in 2008, as stock markets recover amid optimism that stimulus measures will help put an end to the worst of the global economic recession. The MSCI World Index jumped 8.4 per cent in July, bringing its year-to-date advance to 14 per cent.

“The equity market rally has certainly put a tailwind behind certain strategies of hedge funds and it has sped the return of money to this asset class,” said Kirby Daley, a senior strategist in Hong Kong with Newedge Group’s prime brokerage business. “Going forward, investors should be sure to maintain a portfolio of the diversified hedge-fund strategies.”

The Eurekahedge Hedge Fund Index, tracking more than 2,000 funds, added 2.2 per cent and gained for a fifth straight month, taking the year-to-date advance to 12 per cent, the report said. It was the best year-to-July return on record, Eurekahedge said.

‘No surprise’
The worst US economic slump since the Great Depression abated in the second quarter as government spending programs started to kick in. Gross domestic product shrank at a better- than-forecast 1 per cent annual pace after a 6.4 per cent drop the prior three months, Commerce Department figures showed on July 31 in Washington.

The gap between fund closures and launches will narrow in the third quarter as the number of funds shutting down declined quarter-on-quarter since the fourth quarter last year, Eurekahedge said. Still, capital raisings for new funds are among the biggest obstacle, and the increased number of funds won’t be accurately reflected in the industry’s assets until mid-2010, Eurekahedge said.

“Newer firms will find asset gathering hard to start with, but our experience is that running with a small asset base for two to three years is one of the common indicators of long-term success, and was a common denominator of many of the current industry giants,” said Peter Douglas, principal of GFIA, a Singapore-based hedge-fund consulting firm.

Asian hedge funds
All of Eurekahedge’s seven regional indexes rose last month, with managers of Asian and emerging markets funds the best performers. In terms of strategies, managers of so-called long- short funds, who bet on rising and falling stock prices, were the main drivers of performance, Eurekahedge said.

Rising stocks helped Asia-focused hedge funds in the second quarter, Chicago-based Hedge Fund Research Inc said in a separate report released yesterday. The HFRI Emerging Markets Asia (ex-Japan) Index gained 18.86 per cent in the quarter, the strongest performance since the fourth quarter of 1999, HFR said.

Overall hedge-fund assets in Asia increased by $3.2 billion in the quarter to $68.2 billion, the first increase since the second quarter of 2008, it said.

The report showed that hedge-fund firms investing in Asia are continuing to locate in China, which is now home to the second-highest number of Asia-focused hedge funds after the US. The percentage of Asia-focused hedge funds located in China increased to 23.6 per cent, compared with over 5 per cent from a year ago, HFR said.