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Other Voices: Hedge fund net flows will hold up much better if we see another 2008 type market decline

Wednesday, August 24, 2011

This article was authored by Donald A. Steinbrugge, CFA, Managing Partner of Agecroft Partners, a global consulting and third party marketing firm for hedge funds based in Richmond, VA.

After the market decline of 2008, the hedge fund industry experienced a significant contraction that was driven by negative performance, heavy redemptions and almost a complete seizing of inflows. The major question running through the hedge fund industry today, to quote Yogi Berra, the famous New York Yankee catcher, is it “déjà-vu, all over again”? Agecroft Partners is in contact with over a thousand investors per month and they see two major trends developing within the hedge fund investor community based on the recent sell off in the equity market and the increase in volatility, that are very different than what was experienced at the end of 2008. The differences include expectations for hedge fund net capital flows and changes in investor demand for various strategies and types of managers.

Currently, investor’s appetite to make new hedge fund allocations and to meet with managers has seen very little change. Approximately 5% to 10% of investors have said they are on hold until they see how things play out, which is very different than the end of 2008 when a vast majority of investors were on hold or redeeming. Although we have had a dramatic increase in volatility, the S&P 500, as of August 19th, was only down about 10.5% year to date, which has made many investors nervous, but......................

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