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The robust performance narrative has led to an uptick in investor flows, with multi-strategy hedge funds attracting more than net $5bn in July, taking YTD flows to net $14.5bn, ahead of all other hedge fund strategies and comprising almost one-third of all hedge fund inflows during 2021. This marks a reversal from 2020 where there was a $19.5bn outflow from multi-strategy funds.

Furthermore, recent HFM research suggests inflows will continue over the coming months, with almost onethird of investors surveyed in May planning to increase allocations to multi-strategy funds in H2, including almost half of private wealth investors and intermediaries.

Multi-strategy AuM approaches $450bn Following significant investor flows in July, multi-strategy AuM reached $439bn, up nearly 19% from August 2020 and comprising 13% of total hedge fund AuM. And with 87% of multi-strategy funds now posting positive returns in 2021, most multi-strategy fundraisers have a compelling narrative to take them through the next period of recovery and rebuilding from the pandemic.

Credit specialists see inflows as inflation hits new highs

The HFM Fixed Income/Credit Composite was up 5.0% YTD as of the end of July, after a month where the index posted flat performance (0%), marginally in line with other hedge fund strategies. The benchmark 10-Year US Treasury Yield peaked in May and has been falling ever since, but analysts expect it to reach 2 percent by the end of the year. Directional bets on this key marker have been a core driver of credit and fixed income hedge fund performance so far this year and will continue to impact returns in the remainder of H2.

Ongoing effects of record inflation: Inflation also remains a key theme. Indeed, US PPI rose by a record amount in the month of July (7.8% over 12 months), while US CPI rose at a 13-year record in June, and then again in July. However, over a third of the rise in CPI was due to the increased cost of used cars, itself a result of supply-chain bottlenecks caused by Covid-19 and the Q1 Suez Canal blockage. These backlogs are expected to clear later in the year, limiting further rises in inflation. Investors have increasingly looked to credit and fixed income hedge funds for protection against these headwinds.

Credit and fixed income hedge funds attracted $4.2bn in inflows in July, bringing them to a net inflow of $1.5bn for the year. Meanwhile, in a recent survey conducted by HFM in collaboration with AIMA over a fifth of investors said they plan on increasing their allocation to credit and fixed income hedge fund strategies in H2 - an indication of investors' confidence in managers' ability to profit from the above trends. Credit and fixed income hedge funds racked up modest inflows from investors in 2020, a strong achievement in a year when the industry at large saw capital pulled. Managers pursuing credit and fixed income strategies have carried this momentum forward in 2021. Key to solidifying these gains will be successfully navigating inflationary pressures and their impact on US Treasuries in H2.

Opportunities for managers: This comes at a pivotal time for managers asinstitutional allocators increasingly look to rebalance their portfolios away from long-only fixed income, presenting credit and fixed income hedge funds with opportunities.