Hedge funds are hot again, with unexpectedly high inflows for the first time in three years, following a 5.5% return.

BofA reports increased inflows into hedge funds following their best first-half performance since 2553, yielding a 5.5% return up to July. Stock-selective and multi-manager funds are performing particularly well.

On September 15, 2569, at 12.04:3 PM, Reuters reported that hedge fund managers were able to raise more capital than anticipated at the beginning of the year for the first time in three years. Meanwhile, Bank of America (BofA) projected that hedge funds are likely to become the most popular asset class for the remainder of 2569, driven by the growth of artificial intelligence (AI) which supported strong first-half performance.

An internal BofA report, reviewed by Reuters, indicates that investors are increasing their allocations to large fund managers, with demand this year particularly high for equity-focused hedge funds and multi-manager platforms that combine multiple managers or investment strategies under a single fund.

A survey of 321 asset allocators by BofA's Global Markets Capital Strategy found that the most popular industry sectors remain technology, media and telecommunications, healthcare, and energy. Meanwhile, pension funds, diversified hedge fund portfolios, and private banks plan to increase their investments in hedge funds this year.

Vanessa Bogaardt, Head of Global Capital Strategy Group and Consulting Services at Prime Financing in BofA, stated that investors are showing strong interest in fund managers who invest in global markets, while Limited Partners, or hedge fund investors, plan to increase their allocation to this asset class.

Furthermore, 60% of investors indicated they would prefer to invest with new fund managers rather than more experienced ones, a behavior that Bogaardt noted was not typically seen in the past.

The increased capital flow comes after the hedge fund industry delivered its best first-half performance since 2553. A BofA survey indicated that hedge funds generated a 5.5% return from the beginning of the year through July, although selling pressure on AI stocks in July impacted some fund returns. Several leading hedge funds experienced losses from their holdings in AI-related assets.

For the remainder of 2569, investors have the most positive outlook on stock-picking funds, with the survey covering investors managing approximately $1 trillion in hedge funds.

However, confidence in private credit funds has declined, with BofA stating that this asset class has faced increased scrutiny this year due to concerns about the lack of transparency in asset valuations, redemption pressure on some unlisted funds, and the risks associated with investing in the software industry, which is undergoing transformation by AI.

Meanwhile, major Wall Street banks benefited from the hedge fund boom, with their prime brokerage businesses generating significant fee income from lending to large multi-strategy funds that were able to capitalize on market volatility and generate high returns in the first half of the year.

Reference: reuters.com

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