Total hedge fund assets increased 2.02% in February of 2015 bringing the industry’s total asset under management to $3.082 trillion, says a new report from eVestment. Investors added an estimated $13.0 billion of new capital to the industry in February and performance gains increased AUM an additional $48.1 billion.
Investor flows returned to hedge funds in February
After what appear to have been seasonal redemption pressures surrounding year-end 2014, investor flows returned to the industry in February. The trend of outflows, or light inflow, in December and January, followed by inflows in February, has persisted into its fourth consecutive year and is evidence of how institutional investors are shaping the timing of hedge fund flows.
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Elevated investor interest in managed futures strategies continued for a second consecutive month and is evidence of a shift of sentiment that had been persistently negative for nearly three years. Managed futures funds accepted $3.6 billion in new assets in February, bringing YTD inflows to $6.3 billion. The group has not had a positive year of aggregate flows since 2011.
More allocations in managed futures funds
In the first two months of 2015, investors in managed futures funds have shown clear preferences for larger funds and good returns. Investors have allocated nearly 12x more assets to large (>$1b in AUM) over small managed futures funds in 2015. Additionally, flows for funds performing better than their peers in 2014 have dominated inflows in 2015, while underperformers have lost assets this year. Lastly, among funds performing better than average, large funds have received over 14x more new assets in the first two months of 2015 than their smaller, good performing peers.
In addition to managed futures, February and YTD 2015 inflows have been dominated by multi-strategy funds which received an additional $3.1 billion in February and $7.4 billion YTD in 2015. eVestment expected this group to have elevated inflows in 2015 and thus far multi-strategy funds are leading the industry in terms of investor interest for the year.
Event driven hedge funds also see new inflows
Event driven funds also saw new money come in during February, with estimated inflows of $2.6 billion during the month. Interest in funds that employ activist approaches appears to be strong so far in 2015. This subset of event driven funds accounted for nearly all of the broad strategy’s reported inflows in February.
Investor interest has not yet solidified for long/short equity strategies in 2015. YTD flows remain negative, with $6.9 billion of redemptions, as a result of outflows in January. There were new allocations estimated at $790 million in February, but with seasonal pressures abating in other segments of the industry, the below average interest in directional equity exposure, outside of that provided from event driven funds, is much weaker than last year at this time.
Hedge funds: Credit strategies remain flat
Interest in credit strategies is also below the level seen in 2014 so far in 2015, but there are inflows of note in directional or long/short credit funds. Demand for distressed products has thus far been flat, but given the much publicized opportunities in energy markets and Europe, demand is expected to increase.
Emerging market fund flows were negative in both January and now in February, marking the 8th consecutive month of negative investor sentiment towards EM exposure from hedge funds. Redemption pressures are not concentrated within any one country or regional exposure, indicating a general lack of demand in the current environment.