Are investors returning to hedge funds?

Allocations to hedge funds outweighed redemptions in the second quarter of 2017, after six consecutive quarters of net outflows, according to data firm HFR.

The firm reported inflows of $6.7bn (€5.8bn) between April and June, offsetting redemptions of $5.5bn.

The most popular strategy was global macro, HFR said, with investors adding $5.2bn in the second quarter. In the first half of 2017 global macro funds experienced net inflows of $6bn.

Within this sector, systematic and CTA strategies attracted the most attention, with $3.1bn inflows in the second quarter and $7.9bn net new money since January.

Event-driven funds – particularly special situations funds – led the redemptions. Special situations funds experienced net withdrawals of $2.2bn, HFR reported.

Kenneth Heinz, president of HFR, said: “While the capital-raising environment has improved, it remains challenging with low implied and realised volatility creating a performance-moderating headwind for managers.

“Allocation trends reflect the forward-looking nature of investors, focusing on quantitative and trend-following strategies, despite these not being top performing areas, as well as on equity and fixed income beta-reducing exposures.”

Heinz added that funds positioned to navigate a low-volatility environment would likely continue to dominate inflows in the second half of the year.

Hedge funds’ total assets under management rose to $3.1trn by the end of June, according to HFR.

However, figures from rival data firm eVestment painted a different picture for inflows and outflows.

Focusing just on the month of June, eVestment reported a net outflow of roughly $7bn across the hedge fund sector.

The company also reported a tough month for macro funds, in contrast to HFR’s quarterly data: the sub-sector lost $6.4bn in net outflows.

Long/short equity funds led the net inflows, eVestment said, adding $1.6bn in June.

Some pension schemes have reduced their hedge fund exposure in recent months, or exited the sector altogether.

Most recently, the Dutch sector scheme for doctors, SPH, said it planned to cut all its hedge fund holdings due to high costs and complexity. SPMS, the Dutch scheme for medical consultants, reduced its allocation last year following disappointing performance.

However, a survey of more than 1,000 investors by consultancy firm Mercer, published last month, found that allocations to hedge funds grew by 4.6% year-on-year.