Investors Shun Fund of Funds for Higher Hedge Gains: Barclays
The migration of money away from fund of funds and directly into the hedge fund space indicates investors are being drawn by the recent successes in the industry, which look set to continue, according to market analysts. The business for hedge funds in the United States is growing posting an estimated inflow of $7.1bn -- or 0.5% of assets -- in January, according to TrimTabs Investment Research and hedge fund data vendor BarclayHedge. “Hedge funds are likely to receive even more money in the coming months,” said Vincent Deluard, global equity strategist at TrimTabs. “While the S&P 500 is 30.6% below its October 2007 peak, hedge fund performance stands within three percentage points of its May 2008 record high.” Distressed securities funds posted the largest inflow at 6.2% of assets and the best return of 1.8% in January. Multi-strategy funds, such as those diversified into property, posted the largest outflow, while equity-only funds showed the worst return. Funds of hedge funds lost $12.6bn, the 17th month of outflow in the past 19 months. “It’s not surprising that investors are walking away from funds of funds,” said Deluard. “They returned only 12.3% in the past year, less than half of the industry’s 25.9% gain.” At the same time, authorities in the United Kingdom that monitor hedge fund-like entities are broadening the range of funds available to investors. Hedge fund assets in the US stand at $1.5trn, up 23.6% from the April 2009 low, thanks to an unprecedented 11-month streak of inflows, according to the TrimTabs/BarclayHedge monthly report of hedge fund flows. “The inflow in January is a very positive sign for the hedge fund industry,” said Sol Waksman, CEO of BarclayHedge, in a statement e-mailed to HousingWire. “The first month of the year typically delivers a redemption-driven outflow.” Money will also be migrating into a new regime of authorized funds in effect in the UK as of March 6, 2010. The Financial Services Authority (FSA) in late February published new rules for Funds of Alternative Investment Funds (FAIFs). FAIFs are UK-authorized funds, similar to hedge funds in the US, that can be invested in a wider range of underlying funds, with appropriate investor safeguards. London-based Investment Management Association (IMA), a trade group representing £3trn ($4.5trn) in assets under management, said FSA acted on IMA's earlier comments to allow flexibility in fund structure alongside the necessary investor protection measures. IMA said the new rules also provide for a feeder fund for corporate investors to gain access to the new tax efficient authorized property fund (PAIFs) regime. "The introduction of FAIFs is good news for product innovation and investor choice because it enables investors to gain access to a wider range of investments," said Julie Patterson, director of authorized funds and tax at the IMA, in a press statement. Patterson added: "The new regime will enhance the UK's position as a domicile for a wider range of funds." Write to Diana Golobay.