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HFR: Hedge fund experienced net inflows of $9.5bn in Q2 as consolidation in top firms continues

Tuesday, July 20, 2010
Opalesque Industry Update - Investors continued to allocate new capital to hedge funds in the second quarter of 2010, with the industry experiencing a net inflow of $9.5 billion according to figures released today by Hedge Fund Research (HFR), the leading provider of hedge fund industry data. Volatility returned to global capital markets in 2Q10 with the HFRI Fund Weighted Composite Index posting a decline of -2.5 percent, offsetting 1Q10 gains. Total hedge fund industry capital ended the most recent quarter at $1.65 trillion, down from $1.67 trillion the prior quarter.

Following strong performance in 2009, hedge funds declined by -0.21 percent in 1H10, as gains in credit sensitive strategies such as Arbitrage and Event Driven were offset by losses in Equity Hedge and Macro funds. Capital inflows over 1H10 totalled $23.2 Billion, a figure approximately 20 percent of the record inflows in 1H07.

Large funds remain in favor; Fund of Funds outflows moderate
Continuing a recent trend, investors exhibited a clear preference for the industry’s most established firms in 2Q10, with $8.8 billion of the $9.5 billion total net inflow allocated to firms with greater than $5 billion in assets under management (AUM), which manage approximately sixty percent of total industry capital. This preference is also Hedge Fund Research reflected in the mid-quarter announced merger between two of the industry’s largest firms, Man Group and GLG Partners. Following outflows over the past two years, Fund of Funds experienced a continued, albeit moderated, outflow of $2 billion in the second quarter. Only 31 percent of Fund of Funds experienced inflows in 2Q10, compared to 59 percent of all single manager funds.

Intra-industry performance correlation declines
As global equity market correlation has increased in recent months, intra-industry hedge fund strategy performance correlation has declined; with the HFRI Relative Value Arbitrage and Event Driven Indices gaining +3.64 and +2.26 percent, respectively, for 1H10, while the HFRI Equity Hedge and Macro Indices declined by -1.71 and -1.16 percent. In the past five years, Relative Value and Event Driven have had correlations of +0.72 and +0.81 to equity markets, respectively.

“The current environment in the hedge fund industry continues to be dominated by investor preference for robust fund infrastructure, encompassing enhanced liquidity and transparency,” said Ken Heinz, President of Hedge Fund Research, Inc. “Investors have exhibited strong interest in products such as UCITS III-compliant funds and separately managed accounts, as well as in the larger funds in the industry. Further growth in transparent investment vehicles and greater clarity on global financial reform legislation will continue to shape the landscape of the alternative investment industry for the next decade.” Corporate website: Source

- FG

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