Opalesque Industry Update – Total investor capital allocated to hedge funds in Q1 2012 exceeded $16 billion, according to the latest HFR Global Hedge Fund Industry Report, released today by HFR (Hedge Fund Research, Inc.), the global leader in the indexation, analysis and aggregation of the global hedge fund industry.|
Hedge funds posted the best first quarter of performance in five years to begin 2012, with the HFRI Fund Weighted Composite Index gaining nearly 5 percent as global equity and credit markets experienced broad-based gains to begin the year. Combined with this strong first quarter performance, total capital invested in the global hedge fund industry increased to $2.13 trillion, surpassing the previous record of $2.04 trillion set at mid-year 2011.
Investor preferences for fixed income-based Relative Value and less correlated Macro strategies, which have been favored for over two years, accelerated in 1Q12, with these two strategies receiving an overwhelming majority of the new investor capital for the quarter. Investors allocated $12.4 billion in net new capital to Relative Value and $7.8 billion to Macro, while redeeming $2.9 billion from Equity Hedge and $940 million from Event Driven strategies. Relative Value (RV) recently surpassed Event Driven as the 2nd largest hedge fund strategy by assets, reaching $546 billion to end 1Q12; Macro remains the smallest of the four main strategies at $461 billion. The growth of RV and Macro has been impressive, particularly since the start of the global Financial Crisis. While overall hedge fund industry AUM has increased by over 50 percent since the end of 2008, RV has grown by 60 percent and Macro by 66 percent, whereas Equity Hedge has grown by only 31 percent. The trend is also notable because Equity Hedge has been the strongest area of performance for 1Q12, with the HFRI Equity Hedge Index posting a gain of +7.23 percent for 1Q; Macro has been the weakest area of performance, with a gain of +1.0 percent. Since 1990, Equity Hedge has narrowly outperformed Macro as the top strategy area of performance, posting an annualized gain of +13.1 percent, compared to a gain of +12.6 percent for Macro funds.
Investor preference for the industry’s most established managers continued to be pronounced in 1Q12, with $18.3 billion in new capital allocated to firms with greater than $5 billion in AUM, while firms managing less than $5 billion experienced a combined net outflow of nearly $2 billion for the quarter. Investors continued to reduce exposure to hedge funds via Funds of Hedge Funds, with FOFs experiencing a net outflow of $5 billion in 1Q, representing the 4th consecutive quarter in which FOFs experienced a net outflow. While only 13 percent of FOFs experienced net asset inflows during the quarter, as a result of performance gains, assets invested in FOFs increased by $14 billion to end 1Q12 at $644 billion.
“Investors responded favorably to the risk shifting which occurred across financial markets in the first quarter, continuing the trend of allocating to Arbitrage and Macro strategies which exhibit lower directional beta to equity markets,” stated Kenneth J. Heinz, President of HFR. “The record level of assets and the shifting distribution of these are indicative of powerful trends shaping the hedge fund industry in 2012. Sophisticated institutional investors are increasingly allocating to hedge funds as a powerful strategic portfolio complement to existing traditional holdings, utilizing transparency to balance equity market beta, access uncorrelated returns and enhance their ability to exceed target return requirements.”
HFR (Hedge Fund Research, Inc.) is the global leader in the alternative investment industry, specializing in the indexation and analysis of hedge funds. Source