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Hedge funds recorded the largest quarterly asset jump in over three years, with total industry capital increasing by $120 billion in 3Q10 according to data released today by Hedge Fund Research, Inc. (HFR), the leading provider of hedge fund industry data. The capital increase reflects a combination of both performance-based gains and new capital inflows, bringing total assets invested in the hedge fund industry to $1.77 trillion as of 3Q10.

The HFRI Fund Weighted Composite Index posted a gain of +5.17 percent in the third quarter, bringing the cumulative Net Asset Value (NAV) of the broad-based index to exceed the previous record level set in October 2007. After three years, the industry has emerged from the worst cumulative performance drawdown in its history, which had exceeded -21.4 percent through the volatility of the financial crisis.

Capital inflows strongest since 4Q07; Relative Value, Macro lead strategies
Investors allocated a net $19 billion of new capital to the hedge fund industry in the third quarter, the largest quarterly capital inflow since the fourth quarter of 2007. Relative Value and Macro strategies each experienced inflows of nearly $7 billion, while Event Driven funds saw inflows of $5.7 billion. Despite a 3Q performance gain of +5.9 percent, Equity Hedge strategies experienced a net outflow of nearly $600 million. Relative Value Arbitrage and Event Driven funds have been the strongest areas of performance YTD through 3Q, with gains of +8.1 and +6.7 percent, respectively.

Funds of hedge funds (FOF) experienced a narrowly positive net inflow of $250 million, only the second quarter in the last nine in which FOF experienced a net capital inflow. This capital inflow combined with a 3Q performance gain of +3.25 percent brings total FOF AUM to just over $600 billion.

“With the recent performance gains, the hedge fund industry has clearly passed a significant milestone in its evolutionary history,” said Kenneth J. Heinz, President of Hedge Fund Research, Inc. “In the last three years, hedge funds have become more strategically diverse, structurally accessible and transparent to investors, and, as a result, the industry is well-positioned for continued strong growth in coming quarters.”

(press release)

Hedge Fund Research, Inc. (HFR) is the global leader in the alternative investment industry. Established in 1992, HFR specializes in the areas of indexation and analysis of hedge funds. HFR Database includes fund-level detail on historical performance and assets, as well as firm characteristics on both the broadest and most influential hedge fund managers. HFR produces over 100 indices of hedge fund performance ranging from industry-aggregate levels down to specific, niche areas of sub-strategy and regional investment focus. Source

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