Hedge funds get massive boost from wealth investors and pension funds, figures show

News - Funds

Written by Ray Clancy

Wednesday, 14 April 2010 12:00

Wealthy investors and pension funds have led a surge in global hedge funds which took in $16.6 billion in new money in February, the latest data shows.

The flood of new money helped raised assets in the loosely regulated industry to $1.5 trillion, the highest level since the financial crisis, researchers at TrimTabs Investment Research and BarclayHedge found.

‘Money is chasing performance,’ explained Sol Waksman, founder and president of BarclayHedge, one of a handful of asset tracking firms in the hedge fund industry.

Industry analysts and investors expect more to come. Returns have been strong for months with the average hedge fund up 3.5% in the first quarter of 2010, according consultants at the Hennessee Group.

The new flows data illustrate how investors are ready to take on more risk again after the pace of inflows into hedge funds slowed a lot since late 2009.

In January, investors put $4.51 billion into hedge funds, according to analysts at the Channel Capital Group which runs HedgeFund.net yet in December investors had pulled money out of hedge funds.

Looking ahead industry analysts and investors expect flows to keep increasing as many pension funds are facing a shortfall between the amount of money they set aside for retirees and what they expect to have to pay out.

Because hedge funds often promise to make money in all types of markets by being able to bet a stock price will go up or down, industry consultants are now beginning to look at hedge funds as a suitable investment alternative to straight equities, several have said.

Last week the $132 billion California State Teacher Retirement System, which had not invested in hedge funds before, began looking for a consultant to help identify possible hedge fund managers to invest with.

TrimTabs and BarclayHedge said that investors put most of their money with those that specialized in distressed securities with these types of funds collecting 4.2% of new flows.

In the first months of 2010, hedge funds gained 0.6%, according to data from the Hennessee Group, outperforming the Standard & Poor’s 500 index which had lost 1% in January and February.