Despite still being down from peak highs two years ago, hedge funds attracted $150 billion in new assets in the first nine months of this year, according to a quarterly report by Barclays Capital's prime services division.
Despite that inflow, assets under management are down an average of 32% from peak levels. Even so, hedge fund managers surveyed for the report said they remain positive about adding more assets. Managers are “significantly more positive on the industry outlook,” said, Andrea Gentilini, Barclays Capital's head of strategic consulting in its prime services division and the author of the report, “Raising the Game.” The survey also found that hedge funds are now devoting more resources to differentiate themselves as a result of the financial crisis.
Managers of mid-sized and large funds with more than $5 billion of assets had lower outflows as compared to smaller funds with less than $5 billion of assets. Managers of mid-sized funds, which had between $5 billion and $10 billion of assets, reported that year-to-date inflows have outpaced outflows, resulting in net positive flows of approximately 5%. A lot of this can be attributed to the fact that institutional investors still favor larger hedge funds, with more than 40% of allocation to funds with more than $10 billion of assets.
Gentilini found that hedge fund managers have learned to be "more strategic in their asset raising practices and brand management." In fact, managers "can no longer let returns sell themselves,” Gentilini said. “Today's investors want more communication, more due diligence and more transparency. Funds that focus on this have clearly been recognized by investors."
According to the report, hedge fund managers are working to build their marketing and investor relations teams and increasing investor communications. While larger funds currently have the largest marketing and investor relations teams, the biggest planned increase is by funds with less than $5 billion of assets, who are looking to increase head count in their asset-raising teams by an average of 35% to 40% in an effort to recapture assets.
The report, released Monday, is based on interviews with hedge fund managers whose funds manage a combined total of $387 billion of assets, which represents approximately one-third of the hedge fund industry.
According to a separate report released last week by Hedge Fund Research, the recession has cut into the number of new hedge fund launches since the middle of last year, but new hedge funds outpaced the number of liquidations in the third quarter for the first time since the financial crisis.