Despite Insider Trading and FBI Raids, Hedge Funds Likely to See Inflows

(January 4, 2011) – Despite recent concerns over insider trading and accompanying criminal probes at various hedge funds and the informational networks they often employ, at least once consulting firm is predicting that 2011 will see inflows into these investment vehicles.

Agecroft Partners, a consulting and third-party marketing firm, is predicting that inflows into hedge funds will cross various strategies/categories, and will increase in amount from all types of institutional investors. These flows will be focused on small and medium-sized hedge funds, according to the firm, due in part to a decrease in competition from larger funds that have closed their doors to new investors.

“In 2009 and 2010, there was a significant increase in competition within the hedge fund industry due to many previously closed hedge funds opening their funds to new assets,” the firm said in a press release. “After two years of the majority of assets flowing to the largest hedge funds, combined with strong performance, many of these big funds have either closed or are near capacity. The end result is less competition for assets from the largest well-known hedge funds as investors shift their focus away from investing in brand names toward managers capable of generating future alpha.”

Also included in Agrecroft’s predictions: 2011 will bring a large number of hedge fund launches, as was seen in the growth years before 2008’s crisis.

“With improved asset flows across most major hedge fund investor segments, many of these managers will have the confidence to finally launch their new funds,” the firm said. “This will make 2011 the best year for hedge fund launches since 2007. This activity will be further fueled by leading financial institutions shedding their proprietary trading desks, resulting in multiple, billion-dollar hedge fund launches.”

Agecroft’s predictions are based on interviews with 300 hedge funds and 1,500 institutional investors, according to the release.