Hedge Fund AUM Increases $100 Billion Despite Underperformance

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Long-only hedge funds outperformed in October, while distressed debt strategies underperformed, and asset flows have increased assets under management by $100 billion so far this year, according to research from Eurekahedge.

“US related news dominated global markets for most of the month starting with the 16 day partial shutdown of the government,” reads the Eurekahedge report. “The shutdown was ended mid-month, which saw equities gain traction. Positive macroeconomic data throughout the month as well as the expectation that the US Federal Reserve will postpone tapering, added further impetus to global markets.”

Hedge funds performance for October

The Eurekahedge Hedge Fund Index was up 1.40%, compared to a 2.69% gain for the long-only index. Asia ex-Japan had the strongest regional growth followed by Europe and emerging markets, while Eastern Europe and Russia continued to underperform with the weakest monthly growth and a net decline so far this year.

Multi-strategy funds had the best performance for October followed by long/short strategies and fixed income. Distressed debt still has the best performance year to date, but it was the worst-performing strategy last month and most people expect it to continue to underperform in the short-term.

Estimates for asset under management

Eurekahedge estimates that hedge funds have $1.9 trillion in assets under management industry-wide, and that number is expected to hit a new record by the end of this year, but that is on the strength of inflows, not performance. Equity markets have outperformed hedge funds for the year, and even if valuations are currently too high it is unlikely that hedge funds will overtake them this year.

Hedge funds have been moving more towards long strategies to take advantage of the recovery in the U.S. and what many hope will be a strong recovery in Europe next year, while short strategies have generally taken a beating. There has been growing interest in preparing short strategies because the current state of high valuations and tight dispersions can’t last forever. As always, finding the right moment to move in is vital, and the noted short seller Bill Fleckenstein is currently gathering funds but not actively shorting stocks. He wants to raise $200 million by early 2014 to take advantage of “really stupid valuations.”

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