Inflows into alternative UCITs (EU investment vehicles that allow asset managers to reach investors throughout the EU) fell last month to €4.2 billion bringing the monthly average to €5 billion for the year, but this is still roughly twice the rate as last year.

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Fund of hedge funds taking the place of individual investors

“Such trends highlight both the appetite for the asset class and the success of the UCITs format,” writes Lyxor Asset Management analyst Pilippe Ferreira in a May 23 report. He notes that hedge funds in general have been attracting more attention, with $26.3 billion in inflows for 1Q14, the best pull in the last three years.

ucits inflows growing 0514

Hedge fund managers biggest investors in UCITs

Fund of hedge funds managers are the biggest investors in UCITs, making up just over half of all investments in the asset class. This marks a departure from ten years ago when wealthy individual investors and family offices were the primary investors in most hedge funds, but ultimately the money may come from the same place being invested through intermediaries instead of by the investors themselves.

UCIT investor breakdown 0514

Hedge fund weekly breakdown

Distressed debt and credit event driven funds had strong performance last week (May 13 – May 20) by being uncorrelated to markets that punished most other strategies, but special situation funds lost 1.0% and merger arbitrage funds were down 0.5%, though both are still net positive YTD.

CTA funds suffered losses mostly due to losses from long equity positions, with long-term CTA funds contracting 0.3% and short-term CTA losing 0.7%, bringing the strategies to -3.6% and -3.7% returns so far this year. Exposure to European currencies made matters worse, as it became clear that the ECB will likely have to take stronger measures to fight deflation and soften the euro.

UCITs CTAs offset

Global macro funds similarly lost 0.2% because of their long equity exposure, though some managers managed to beat the trend as long-dated bonds rallied. Long/short equity strategies also lost ground, with long-biased funds dropping a full 1.0% (down 2.7% for the year) while market neutral and variable bias funds lost 0.4% and 0.6% respectively. Ferreira says that the risk-on/risk-off investment environment is to blame for many of these losses.

UCITs LS Credit

“Although we had not seen quality deteriorating as much in April, the quality-value spread is down -2.7% in May [month-to-date],” he writes. “During the past week, industrial names were hurt the most and we saw indiscriminate selling out of mid cap names (Russell down 2%).”