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Hedge fund industry extends record asset level with 2Q inflows

Wednesday, July 20, 2011
Opalesque Industry Update - Investors continued to allocate new capital to hedge funds through and despite the volatile performance environment in 2Q11, as new allocations to the hedge fund industry totaled nearly $30 billion in 2Q11, according to data released today by HFR in the latest edition of Global Hedge Fund Industry Report: 2Q11. Inclusive of the $32 billion in inflows from the previous quarter, inflows in 1H11 exceeded $62 billion, the strongest half-year total since 2H07, when the industry saw $75 billion in inflows. Strong 2Q inflows offset a modest performance-based asset decline, and extended the record level of capital invested in the global hedge fund industry to $2.04 trillion.

Investors favor Macro, Relative Value and Quantitative strategies
Investors exhibited strong preference for Macro and Relative Value strategies in Q2, with these receiving over $20 billion of the new inflow. In terms of performance, Macro and Relative Value were at opposing ends of spectrum in 2Q, with the HFRI Macro Index posting a decline of -1.7 percent, while the HFRI Relative Value Index gained +0.76 percent.

Investors also indicated a clear preference for systematic, quantitative strategies with those receiving $10 billion in new capital across various sub-strategies, including Macro: Systematic Diversified. Equity Hedge strategies experienced inflows of only $1.7 billion in new capital in 2Q, bringing the YTD inflow total for Equity Hedge to $8.1 billion, the lowest of the four main strategy groups. After experiencing an inflow of $4.8 billion in 1Q, Fund of Funds saw a net withdrawal of $2.1 billion in 2Q; the HFRI Fund of Funds Index declined by -1.2 percent for the quarter.

After several quarters of moderating concentration, 2Q saw a reversal of this trend with the industry’s largest funds experienced a proportional increase in the new capital flows. Approximately two-thirds of the 2Q inflow went to firms with greater than $5 Billion in firm AUM; these funds manage approximately 62.4 percent of all industry capital. The overall percentage of funds which experienced inflows fell to 61 percent in 2Q from 71 percent in the prior quarter.

“Financial markets continue to be dominated by uncertainty and volatility, and investors are allocating to hedge funds, expecting and anticipating this uncertain environment to persist. The many catalysts in this environment, including the European sovereign debt crisis, the debate surrounding the U.S. debt ceiling, accelerating Asian inflation, fallout from bank stress tests, and mixed U.S. employment and housing statistics, suggest risk is changing faster and more dynamically than ever before,” said Kenneth J. Heinz, President of HFR. “Hedge fund investors are now more sophisticated than ever and are allocating to areas such as Macro, Relative Value and various quantitative strategies in anticipation of opportunities to be created by transition, volatility and risk.”

(press release)

About HFR
HFR Hedge Fund Research, Inc. 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, the most comprehensive resource available for hedge fund investors, 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 has developed the industry’s most detailed fund classification system, enabling granular and specific queries for relative performance measurement, peer group analysis and benchmarking. 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. With performance dating back to 1990, the HFRI Fund Weighted Composite Index is the industry’s most widely used standard benchmark of hedge fund performance globally. The HFR suite of Analysis Products leverages the HFR Database to provide detailed, current, comprehensive and relevant aggregate reference points on all facets of the hedge fund industry. HFR also offers consulting services for clients seeking customized top-level or more nuanced analysis. For the hedge fund industry’s leading investors and hedge fund managers, Hedge Fund Research is The Institutional Standard.Source

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