For the first time in more than two years, more money is flowing into hedge funds than is being pulled out of them as smart-money investors look to protect themselves from growing uncertainty around the world.
The third quarter of 2020 saw net inflows of $13 billion for the hedge fund industry as a whole, marking the first time since the first quarter of 2018 that asset managers attracted more from investors than they lost, according to data from Hedge Fund Research.
“Institutions globally are making forward-looking allocations to hedge funds,” HFR president Kenneth J. Heinz said in a statement. They are doing this, he said, because they are “anticipating and positioning for the near-term uncertainties of both the virus and the US election, as well as intermediate-term macroeconomic uncertainties of the US, European and Asian economies into 2021.”
The hedge fund industry had been rocked by widespread poor performance in recent years, leading clients to pull their money and even forcing some funds to return everything before they shut down entirely. In fact, more hedge funds have closed than have opened in the past five years, cutting the entire industry almost in half.
That winnowing down of hedgies has also allowed the big to get bigger, a trend that is reflected in HFR’s data.
Between June and August of 2020, funds managing more than $5 billion netted $11.2 billion in new investment while funds running between $1 billion and $5 billion saw a reverse result with net outflows of $810 million.
One example of the rich getting richer is Larry Fink’s behemoth BlackRock, which manages $7.8 trillion. It reported net inflows of $129 billion in the third quarter alone, a 7 percent increase in the firm’s vast asset base.
But in a signal that the industry is poised for a rebirth with new investors taking the lead on boutique strategies, HFR found that funds managing less than $1 billion saw net inflows of $2.6 billion.
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