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Morning Brief: Hedge Fund Flows Were Mixed in Third Quarter

Despite huge stock market gains this year, only 40 percent of equity funds saw inflows in the third quarter.

  • By Stephen Taub

Hedge funds may be poised to post their best results since 2013, but investors are not exactly pouring money into the industry with exuberant conviction. While Preqin data show that more than a net $19 billion flowed into hedge funds in the third quarter, bringing total inflows for the year to $43.9 billion, a large portion of managers saw redemptions. Just 37 percent of hedge funds had inflows during the three months through September, compared to 44 percent with outflows, according to a November 21 statement from the alternative-assets data provider. And despite the stock market’s huge gains this year, equity strategies pulled in just $1.3 billion in the third quarter, with only 40 percent of equity funds seeing inflows, Preqin said.

The better performers attracted more capital. Forty-seven percent of hedge funds with gains exceeding 5 percent in the first half of the year saw net inflows in the third quarter, while 58 percent of funds that returned less than 5 percent suffered outflows. Credit strategies and multi-strategy funds saw inflows of $13.9 billion and $13.3 billion, respectively, in the third quarter, while investors pulled capital from macro, CTAs and relative value strategies. The last time that CTAs had quarterly outflows was the fourth quarter of 2016.

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One of Greenlight Capital’s new positions surged in price Tuesday while another plummeted in after-hours trading. Micron Technology, one of the significant positions highlighted in Greenlight’s third-quarter letter to clients, jumped 3.7 percent to $49.40 a share. The semiconductor maker was also the largest U.S. long position of David Tepper’s Appaloosa Management. Meanwhile, Hewlett Packard Enterprise, which is held by Greenlight and Starboard Value, sank more than 7 percent in after-hours trading. The shares traded down after the enterprise hardware company announced that chief executive officer Meg Whitman plans to step down next year.

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A record $223 billion was invested in emerging-markets hedge funds at the end of the third quarter, according to a new report from Hedge Fund Research. HFR said that Chinese hedge funds are the category’s top performers this year. Its HFRI EM: China Index is up 28.1 percent through October, the best performance since 2009. The HFRI EM: Latin America Index is up 15.5 percent, after gaining 27.2 percent last year.

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