The hedge fund industry's recovery appears to have taken a hit anew, according to a new report from eVestment. For a second straight month in 2014, total assets of hedge funds have declined with inflows in July dropping 0.49%. Compared to the last 12-month inflow average of US$14.6 billion, hedge funds last month only took in US$4.9 billion in new assets.

Despite the slowdown of inflows, the sector's assets under management (AUM) remain over US$3 trillion, a far cry from the US$1.4 billion during the height of the 2008 financial crisis. July's net inflow pushed the year-to-date industry total net inflows to above US$100 billion, a level the industry has not seen since 2007.

Credit strategy redemptions were cited as the main cause for stifling inflows, with over US$2 billion redeemed last month. Credit fund flows had been positive for the last several months but have been slowly declining since. Specifically, directional credit and mortgage-backed securities (MBS)-focused strategies were primary causes of outflows in the industry.

Macro strategies were also faced with a second consecutive month of elevated outflows in July with around US$2.5 billion recently redeemed. This has brought the group's year-to-date flows in the red. If the current pattern holds, macro funds will experience two straight years of net outflows, a scenario last witnessed in 2003, the report said.

Despite recent outflows, investor interest in equity has remained high with US$8.3 billion new inflows last month. This brings the year-to-date total to US$74 billion, the largest inflows recorded for the equity group since 2007. The repositioning of institutional assets away from traditional long-only US equity is noted as a catalyst for bringing investors towards equity-focused hedge funds.

The report notes that event-driven funds have also benefited from the recent repositioning, with around US$2.2 billion of inflows during July and a year-to-date total of US$37.2 billion, second only to long/short equity which so far has taken in US$42.2 billion.

Geographically, the report said investors are still following a year-long trend of working with hedge funds involved with European markets. Inflows for the investment region were US$2.4 billion in July and US$25 billion for 2014. This could be a sign of investor confidence and the presence of opportunities in both European credit and equity markets, it added.