The US firm responsible for the index, Hedge Fund Research, said that after four quarters in which asset inflows averaged nearly $21.2bn (e17.3bn) per quarter and never dipped below $19.6bn, Q2 inflows slowed to $7.5bn.
These combined developments resulted in the total assets in hedge funds increasing relatively slightly to $865.9bn, up from $864.7bn at the end of Q1.
Joshua Rosenberg, president of Hedge Fund Research, said it was too soon for hedge fund investors to panic. The majority of asset classes moved in a highly correlated fashion in the past quarter, he said. As a result, there were few opportunities for hedge funds to profit from the market volatility on which many of them thrive. “Given the difficulty of these market conditions, we take it as a good sign that the industry only gave up 1 per cent.”
A closer look at hedge fund performance in July suggests that key problem areas are directional strategies.
According to the Edhec Business School in France, for example, equity long short returned a negative 1.43 per cent for the month, and merger arbitrage a negative 0.7 per cent. The school said this was due to “poor performance of stock markets and the negative size spread”; in other words, lack of volatility once again.
The calm of the markets appeared to benefit one type of hedge fund strategy, however: relative value approaches scraped a positive return in July of 0.21 per cent.
Further hope for hedge funds has come from Chris Erwin, investing principle at Aon Consulting. He predicted that UK pension funds would start making significant investments in hedge funds in the next two years, as the products are brought onshore and as pension fund trustees seek to diversify their investments.
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