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Hedge Fund Inflows Resume After Year-End Redemption Crunch

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Following seasonal outflows in December and January, hedge fund assets grew by 2% in February, bringing the sector’s total assets under management to $3.1 trillion, according to eVestment.

Investors allocated some $13 billion of new capital to the industry in February, and performance gains added $48 billion more.

A pattern of year-end redemption pressures followed by inflows in February, now in its fourth consecutive year, shows how institutional investors are influencing the timing of hedge fund flows, eVestment said.

Managed futures, which returned to favor with investors in the second half of 2014, took in $3.6 billion in new assets in February for a year-to-date total of $6.3 billion. This is the strategy’s first positive year of aggregate flows since 2011, eVestment reported.

Managed futures recorded returns of 6.6% last year, well ahead of other hedge fund strategies.

In January and February, investors allocated nearly 12 times more assets to larger managed futures funds with upward of $1 billion under management than to smaller ones, eVestment said.

As well, larger managed futures funds with good performance have enjoyed 14 times more new asset flows in 2015 than their well-performing smaller peers.

Multi-strategy funds are the other big story so far this year. These funds lead the hedge fund sector in terms of investor interest, having received $3.1 billion in February and $7.4 billion year to date.

Event-driven funds also attracted new money in February, primarily on the strength of activist approaches: $2.6 billion.

Long/short equity strategies, which dominate in terms of total assets under management with $684 billion, are receiving a tepid response from investors. These funds took in $790 million in February, but because of big January redemptions, year-to-date flows were negative $6.9 billion.

eVestment said below-average interest in directional equity exposure this year, except that from event-driven funds, was considerably weaker than at the same time in 2014.

In February, investors turned their backs on emerging market funds for the eighth consecutive month, taking away $3.4 billion.

According to eVestment, redemption pressures are not concentrated within a particular country or regional exposure. This indicates a general lack of investor demand in the current environment.

— Check out How Investors and Managers See the Hedge Fund Industry on Thinkadvisor.