Hedge funds took in $6.1 billion in August as the industry outperformed slumping markets, according to data released on Monday.
August marked the seventh month this year when inflows into the $2 trillion hedge fund industry exceeded redemptions, according to figures compiled by BarclayHedge and TrimTabs Investment Research. Hedge funds took in $51 billion in the first eight months of the year.
The vicious market sell-off that began in August and continued into September hurt many hedge fund managers, who lost 5.02 percent on average in the third quarter, according to Bank of America Corp research.
The wild market swings even demolished returns for such industry stars as John Paulson and Lee Ainslie.
Paulson rose to fame with prescient bets on the subprime crisis and gold, but his hedge fund firm, Paulson & Co, is one of this year's worst performers. One of its biggest funds, Advantage Plus, is off 46.73 percent in 2011, said two people who saw the numbers. The fund lost 19.35 percent in September alone.
Despite disappointing performance by individual managers, investors continued to pour money into hedge funds, which outperformed the Standard and Poor's 500 stock index <.SPX> in the first eight months of the year.
"Recent inflows might owe in part to excellent relative performance," said BarclayHedge President Sol Waksman. "While the S&P 500 plunged 10.6 percent in the four months ended August, the Barclay Hedge Fund Index decreased only 5.6 percent."
Waksman also said that preliminary data for September showed hedge funds beat the S&P 500 again last month.
Risk-averse investors have piled into fixed income hedge funds in 2011. This type of fund, which invests in securities like corporate bonds and Treasuries, has been the most popular destination for new capital in 2011, taking in $14.6 billion this year.
Fixed income funds are also the best performing type of fund in 2011, returning 3.6 percent, the BarclayHedge data showed.
"Hedge fund managers have zero interest in risk at present," said TrimTabs analyst Leon Mirochnik. "They are clinging to the safely of Treasuries and the greenback and stiff-arming stocks."