The bad news for credit hedge funds is they're lagging behind a broad index of bonds this year. The good news is that investors don't seem to care.

While relative-value credit hedge funds barely eked out a positive return in the three months through September, they're on track to receive the most new money since 2007 after amassing $40.57 billion in the first three quarters, Hedge Fund Research Inc. data show. Assets in the funds, which can go short as well as long, have about doubled in the past six years, reaching $756 billion as of September.

The reason for their appeal? Pensions, insurers, and other big investors are getting nervous about lofty asset prices as the Federal Reserve prepares to raise interest rates. They want money managers who have the flexibility to profit in a falling market and are piling more cash into funds managed by firms such as CQS U.K. LLP, Pine River Capital Management LP, and Tricadia Capital Management LLC.