After years of losing both clients and clout in financial markets, signs are emerging that hedge funds are back in favor in the U.S.
In the past few months, investors such as the $29.1 billion Texas Employees Retirement System, Austin, and George Soros's family office have been plowing cash into hedge funds in an effort to diversify their assets after stock markets rebounded much more sharply from the coronavirus-stoked sell-off than anticipated.
Some well-known fund managers, sensing the moment, began accepting new capital for the first time in years, including D.E. Shaw & Co. and Seth Klarman's Baupost Group. Twenty-five of these funds, have pulled in about $15 billion this year, according to one prime broker. A Credit Suisse Group survey released this week highlighted the shift: Investors are more interested in hedge funds than any other major asset class going into the second half of the year.
The trend is nascent and tepid — some analysts still project net outflows from hedge funds this year — and could fade as quickly as it appeared. But it is an encouraging sign for an industry that has been mired in a long and relentless slide since its peak during the 2008 financial crisis.
"The sentiment is that the worst is behind us for now," said Kate Holleran, managing director of capital solutions at Barclays. "We're hearing anecdotes of investors revising or paring back their redemption requests and taking a more business-as-usual approach."
Amid the market volatility induced by the COVID-19 outbreak, hedge funds have done their job. About 51% made money this year through May, while the S&P 500 index lost almost 6%, according to research firm PivotalPath, whose database represents about two-thirds of hedge fund assets.