Investors bet big on stock hedge funds, snub traditional funds

BOSTON Fri Jan 17, 2014 2:36pm EST

BOSTON Jan 17 (Reuters) - Big investors fueled by rallying equity markets made large, fresh bets on hedge fund managers that pick stocks late last year, while shunning traditional long-only stock funds, data group eVestment said on Friday.

Endowments, pension funds and other wealthy investors sent $30 billion into equity-oriented hedge funds in the second half of 2013, eclipsing the roughly $8.1 billion in outflows recorded in the first half of the year, the data show.

The net $21.9 billion worth of inflows into equity-oriented hedge funds in 2013 stand in stark contrast to the $108 billion that investors pulled out of traditional long-only stock funds during the first nine months of the year, eVestment said.

Investors may have wanted the upside potential that the rallying stock market was showing them, along with some protection if the market reversed - something traditional funds are less able to provide.

"The return of interest in having some equity exposure in the second half of the year made the primary difference for hedge funds," said Peter Laurelli, eVestment's head of research.

The big bet on equity-oriented hedge funds comes despite the industry's middling returns in 2013. The average hedge fund gained only 9.3 percent while equity-oriented funds returned 14.6 percent - both falling far short of the Standard & Poor's 500 Index 32.4 percent climb.

Many traditional stock funds kept pace with the S&P.

For hedge funds in general, 2013 was a strong year for flows, with funds taking in $71.9 billion, nearly three times as much as they did in 2012 when investors added $24.9 billion. In 2011 they put in $26.5 billion and in 2010 they added $80.6 billion.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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