BarclayHedge reported on Tuesday that the managed futures sector surpassed all other hedge fund strategies in assets under management at the end of the second quarter. According to the Iowa based data provider money under management in managed futures grew to $223.4 billion in the second quarter, surpassing all the other hedge fund sub sectors it lists.
It is an impressive showing for an asset class that has struggled over the last 18 months but one could argue that after its 2008 performance it should have surpassed all other hedge fund strategies combined.
While performance might justify that, the sector doesn’t have the capacity for that and while we have a great deal of respect for BarclayHedge and its president Sol Waksman, we never have considered managed futures as a class of hedge fund. To be fair the database lists managed futures separately from hedge funds and hedge fund sub sectors it follows.
And while we respect their numbers it is not official as numerous databases split up the hedge fund world in various different buckets and not all managers report their performance. But what is clear is managed futures is gaining steam at a time when overall hedge fund investment is below their historical highs. For example, BarclayHedge lists the peak for money under management in hedge funds at $2.139 trillion at the end of 2007. At the same time managed futures had $206 billion under management.
Looking inside BarclayHedge’s numbers reveals some other interesting tidbits. For instance managed futures saw one of its biggest year over year increases at the end of 2007, jumping more than 21% in front of one of its best years on record in 2008. This goes counter to the assumption by many so called experts that managed futures’ overall performance is skewed by 1) survivorship bias and 2) that investors tend to allocate money after strong performance periods that often precede drawdowns. Managed futures saw a 30% increase in 2006 before the Barclay CTA index chalked 7.64% in 2007 and added 21% in 2007 before its 14.09% performance in 2008. Much of the increase was from institutional investments, which undoubtedly eased some of the pain of the poor performance of equities and equity related alternatives in 2008.
Money under management in managed futures still has not returned to its peak of $234.1 billion at the end of the second quarter 2008. Assets under management peaked mostly due to performance and then dropped off as investors needed to pull liquid assets to cover huge losses in the rest of their portfolios.
Also interesting is the hedge fund sub strategy with the most assets is event driven with $222.4 billion and long-short equity has taken a precipitous drop, about 40%, from it peak in 2007. That seems to indicate that sophisticated investors are looking for real diversification in alternatives and are shying away from those strategies that tend to correlate with equities.