High fees and low returns led to a cascade of hedge fund closings last year, sweeping away even heavy hitters like Perry Capital and Eton Park. This year is easing frets about the death of the hedge fund industry as liquidations declined in the second quarter, according to Hedge Fund Research.
Hedge fund liquidations fell to 222 in the second quarter, from 250 in the first quarter and 239 in the second quarter last year. Investor inflows increased total hedge fund capital to a record $3.1 trillion, as investor allocations beat redemptions for the first time in almost two years, according to HFR’s report.
New fund launches also increased to 180, trailing the first quarter’s 189 in the first quarter and outpacing the 170 openings in the second quarter last year.
The flood of fresh cash comes as markets continue to touch new highs. On Monday, the S&P 500 extended its rally by 0.15% to a record 2,503.87 and the Dow Jones Industrial Average notched a 0.3% gain to a highest-ever 22,331.35.
Markets are looking to the Fed’s decision on interest rates on Wednesday, which are expected to remain unchanged as inflation reports may portend a rate hike later in the year.
One of the only categories to suffer outflows, Fundamental Value saw $800 million leave, bringing total first-half declines to $4.5 billion.
Investors were more favorable to Relative Value Arbitrage strategies, pouring $1.6 billion of net new capital in second quarter, compared to $5.4 billion in outflow in the first quarter. The HFRI Relative Value (Total) Index that measures their performance reported an increase of 2.7% in the first half, with 16 months of consecutive gains.
Among hedge fund managers (irrespective of investing philosophy) tracked by GuruFocus, the most bet on Alphabet (GOOG, Financial), Apple (AAPL, Financial), Visa (V, Financial), Altaba (AABA, Financial) and Wells & Fargo (WFC, Financial).
