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Hedge funds ramp up AUM but not their short selling activity

22 June 2011

Hedge funds are enjoying strong inflows from investors. So why isn’t this leading to more short-selling?

Read more: Hedge fund securities lending

The most popular strategy in the hedge fund community is “long”; or so the joke goes in securities lending circles. That is the standard explanation as to why, with the hedge fund industry seemingly back on its feet after the financial crisis, demand for borrowing securities remains low.

There is certainly no fear that the hedge fund industry is struggling. Investor inflows have been strong this year; the industry passed $1.8trn of assets under management (AUM) after another boost in April, nearly back to 2008 peaks. Capping ten consecutive months of growth, hedge funds grew by $52bn in April, of which $28bn was net asset inflows and $24bn a result of performance, according to Eurekahedge. In the first quarter of 2011 $94bn flowed into hedge funds, compared with $66bn for the whole of last year. Approximately 200 new funds have set up since January.

With reports that...