Global hedge funds took in $16.6 billion in new money in February as pension funds and wealthy investors raced to capture a piece of the industry's recent strong returns, data released on Monday show.
The flood of new money helped raised assets in the loosely regulated industry to $1.5 trillion, the highest level since the financial crisis, researchers at TrimTabs Investment Research and BarclayHedge found.
Money is chasing performance, Sol Waksman, founder and president of BarclayHedge, one of a handful of asset tracking firms in the hedge fund industry, said in a statement.
And industry analysts and investors expect more to come.
Returns have been strong for months with the average hedge fund up 3.50 percent in the first quarter of 2010 after delivering its best performance with a 20 percent gain in 2009, consultants at the Hennessee Group said.
The new flows data illustrate how investors were ready to take on more risk again after the pace of inflows into hedge funds had slowed a lot since late 2009.
In January, investors put $4.51 billion into hedge funds, analysts at the Channel Capital Group Inc, which runs HedgeFund.net, reported in February.
That is only a fraction of the $54 billion hedge funds took in during August, September, October and November. In December investors pulled money out of hedge funds, TrimTabs and BarclayHedge said.
Looking ahead industry analysts and investors expect flows to keep increasing as many pension funds are facing a shortfall between the amount of money they set aside for retirees and what they expect to have to pay out.
Because hedge funds often promise to make money in all types of markets by being able to bet a stock price will go up or down, industry consultants are now beginning to look at hedge funds as a suitable investment alternative to straight equities, several have said.
Last week the $132 billion California State Teacher Retirement System or CalSTRS, which had not invested in hedge funds before, began looking for a consultant to help identify possible hedge fund managers to invest with.
TrimTabs and BarclayHedge said that investors put most of their money with investors that specialized in distressed securities with these types of funds collecting 4.2 percent of new flows.
In the first months of 2010, hedge funds gained 0.6 percent, according to data from the Hennessee Group, outperforming the Standard & Poor's 500 index which had lost 1 percent in January and February.
(Reporting by Svea Herbst-Bayliss; Editing by Bernard Orr)