Focus

TOTAL hedge-fund assets under management ended 2011 a smidgen over $2 trillion, according to Hedge Fund Research, having fluctuated around that figure throughout the year. Net capital inflows were over $70 billion, half of which was allocated to relative-value strategies (mostly based on fixed-income instruments). The tough economic climate prompted investors to adopt a risk-averse attitude and seek quality assets. Relative value was the best-performing strategy, but even so it only managed to eke out a return of 0.5% (net of fees). Total returns in the composite index fell by over 5% in 2011, the second-worst year since records began in 1990. Equity hedge, macro and event-driven indices declined by 8.3%, 3.8% and 2.8% respectively. They attracted net inflows of $27.9 billion. A recent survey by SEI, a financial-services firm, found 38% of institutional investors expect to increase their allocations to hedge funds this year, down from 54% in 2010. Redemption notifications in January were at their lowest since 2008, when records began, according to GlobeOp, a hedge-fund administrator. This could be because they cannot get better returns elsewhere, or they learned a lesson from 2008 and decided not to liquidate at what they think might be a trough before a rebound. Alternatively, it may simply be a calm before the storm. Redemptions, which tend to occur on a quarterly basis, might not be reflected in asset flows for another few months.