Opalesque Industry Update: Total capital invested in the global hedge fund industry expanded during the first quarter at the fastest rate since 2010 as global financial institutions positioned for both growth and volatility across fixed income, equities, currencies and commodities. Total assets under management increased by $122 billion, the largest increase since 4Q10, bringing industry capital to a record $2.375 trillion, according to the latest HFR Global Hedge Fund Industry Report, released today by HFR, the established global leader in the indexation, analysis and research of the hedge fund industry. Investors allocated $15.2 billion of net new capital to hedge funds in 1Q13, marking the highest inflow since 1Q12. Hedge funds have experienced capital inflows in 14 of the 15 quarters.|
Fixed Income-based Relative Value Arbitrage (RVA) strategies led capital inflows in 1Q13 with a net asset inflow of $9.4 billion. RVA funds have led all strategies in capital inflows in each of the past 3 years, making it the largest area of assets by strategy, with nearly $640 billion in total capital. RVA growth has been driven by steady, consistent performance gains; the HFRI Relative Value Index gained +10.6% in 2012 and +3.3 percent in 1Q13, while producing gains in 45 of 51 months since December 2008. Investors allocated a net $3 billion to Macro strategies in 1Q13, inclusive of nearly $5 billion in net inflows to Systematic CTA strategies. The HFRI Macro Index was the weakest area of industry performance in both 2012 and 1Q13, declining by 0.3 percent last year and gaining only +1.4 percent in the first quarter.
Equity Hedge (EH) was the strongest strategy area of industry performance in 1Q13, with the HFRI Equity Hedge Index gaining +5.2 percent; investors allocated $1.86 billion of net new capital to EH strategies in the first quarter. Event Driven (ED) strategies experienced a net inflow of nearly $1 billion, with inflows in Activist and Credit Arbitrage strategies slightly offset by outflows in other ED strategies.
Flows concentrated in established funds
Investor allocations were spread across an array of firm sizes, although the majority of net inflows were concentrated in the industry’s most established firms. Firms managing less than $500 million in capital experienced net inflows of approximately $1.5 billion, reversing the trend of the prior quarter. Despite investor redemptions from several large funds, firms with greater than $5 billion AUM recorded net inflows of over $10 billion in 1Q13, increasing the total capital managed by these firms to more than $1.6 trillion. Total capital invested in the hedge fund industry via Fund of Hedge Funds increased to $650 billion, as performance-based asset gains were pared by net outflows of nearly $5 billion.
In-line with the performance of U.S. equities, the HFRI Fund Weighted Composite Index gained +3.8 percent in 1Q13, ending the quarter with an index value of 11,474, which represents a new performance high watermark for the hedge fund industry. Individually, 45 percent of all hedge funds reached their respective high watermarks in the first quarter.
The total of net new capital from funds which experienced inflows in 1Q13 was $55.6 billion, while the total from funds that suffered net outflows was $40.4 billion, resulting in the overall net asset inflow of $15.2 billion. Fifty-seven percent of all hedge funds experienced net capital inflows in 1Q13.
“While US equities reached record levels in 1Q13, investors and asset managers were confronted with a complex environment dominated by the global asset pricing implications of aggressive quantitative easing and stimulus efforts, new European banking crisis developments, high profile shareholder activist campaigns and sharp reversals in currency markets, all preceding a dramatic commodity correction that began shortly after the close of the quarter,” stated Kenneth J. Heinz, President of HFR. “Many global financial institutions and sovereign wealth funds have evolved from their traditional allocations to a fully integrated portfolio model, utilizing hedge funds as a mechanism to access these dynamic and interconnected markets and to mitigate the risk inherent in these exposures. As the strong risk-on environment has faded in early 2Q13, we expect a greater institutional emphasis on alternatives to continue and expand into mid-year 2013.”