By Patturaja Murugaboopathy

(Reuters) – The Preqin Data Center shows that global hedge funds could see positive inflows by 2021 for the first time since 2003. This is due to strong returns, and investors shifting to more stable assets after a period of high volatility and rising inflation.

Preqin Analytics’ data about alternative assets shows that hedge funds attracted $40.9billion in flows in the first three quarters, following outflows totaling $97.2billion and $44.5billion in 2020 and 2019.

(Graphic: Quarterly flows into hedge funds, https://fingfx.thomsonreuters.com/gfx/mkt/jnvweabzavw/Quarterly%20flows%20into%20hedge%20funds.jpg)

Benjamin Crawford (Vice President, Head of Research, BarclayHedge), stated that hedge funds are being sought by investors to diversify, especially considering the recent emergence of the inflation threat.

The reputation of protecting assets against inflation has been earned by several sectors in the hedge fund industry.”

(Graphic: Hedge funds’ total asset under management, https://fingfx.thomsonreuters.com/gfx/mkt/akvezoxrnpr/Hedge%20funds%20total%20asset%20under%20management.jpg)

According to analysts, the Omicron version of COVID-19 is likely to cause increased volatility in the markets and greater uncertainty about the future. This could lead to further increases in the next year’s inflows.

Preqin data showed that global hedge funds experienced an average gain of 13.9% between January 2011 and November 2012. This marks their third consecutive year of above 10% returns. This compares to the 12.4% gain in MSCI’s global stock index during the same time period.

(Graphic: Yearly performance of hedge funds, https://fingfx.thomsonreuters.com/gfx/mkt/byvrjqedeve/Yearly%20performance%20of%20hedge%20funds.jpg)

Events-driven strategies that placed their bets on corporate change such as mergers/restructurings led to a 15.1% increase, while equity strategies achieved a 12.3% rise.

However, the return on macro strategy funds was only 7% in the first 11 months of 2021 as compared to more than 14% for 2020.

(Graphic: Hedge funds performance by strategy, https://fingfx.thomsonreuters.com/gfx/mkt/egpbkoqwwvq/Hedge%20funds%20performance%20by%20strategy.jpg)

Robert Christian, cochief investment officer of K2 Advisors said that “global macro hedge funds were challenged” because some themes from the beginning of the year, like the steepening yield curve theme or weakness in US dollars, have not worked out as expected.

Data from eVestment shows that multi-strategy and managed futures fund were the largest recipients of cash in hedge funds during January and October, with $24.7 billion and $13.1 million respectively.

On the other side, $12.6 billion was the largest outflow for long/short equity funds this year.

(Graphic: Fund inflows by hedge fund strategies, https://fingfx.thomsonreuters.com/gfx/mkt/xmvjonqxqpr/Fund%20inflows%20by%20hedge%20fund%20strategies.jpg)

According to region breakdown, U.S. Hedge Funds attracted $44.3 Billion this year while Europe and Asian funds received $2.95 and $2.34 billion.

Data showed that emerging market funds experienced outflows of $4.86 billion.

Crawford of BarclayHedge stated that everyone seems to find a reason for hedge funds.