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HFR: Top hedge fund firms assume leadership in industry recovery, total AuM now at $1.67tn

Tuesday, April 20, 2010
Opalesque Industry Update - Capital inflows concentrated in industry’s largest firms; Investors continue to focus on structure, UCITS

The hedge fund industry continued the recovery that began in 2009, with the HFRI Fund Weighted Composite Index gaining +2.56 percent for 1Q 2010, bringing the industry within two percent of its previous high watermark reached in October 2007, according to data released today by Hedge Fund Research (HFR), the leading provider of hedge fund industry data.

During the quarter, investors allocated $13.7 billion of new capital to the global hedge fund industry; this combined with a performance-based asset increase of $54 billion bringing total industry capital to $1.67 trillion.

All four main strategy areas experienced asset growth in the period, led by Event Driven strategies into which investors allocated $5.6 billion of new capital. Performance for the strategy was strong as well, with the HFRI Event Driven Index up +4.7 percent for the quarter, driven by significant contributions from Activist and Distressed sub-strategies. The smallest net inflow occurred in Macro strategies, with these receiving less than $1 billion of new capital. Macro funds posted only a modest gain of +0.2 percent for the quarter, with performance undermined by commodity weakness, falling volatility and a lack of persistent trends across asset classes. Equity Hedge and Relative Value strategies also posted both asset and performance gains for the quarter, with Relative Value completing 1Q10 with 15 consecutive months of performance gains.

Inflows concentrated in largest firms

While sixty percent of all funds experienced net inflows for the quarter, inflows were concentrated in the industry’s largest firms. Investors allocated $14.9 billion to firms with greater than $5 billion in assets under management (AUM), while firms managing between $500 million and $5 billion experienced net outflows of $3.7 billion combined. The overall concentration of industry assets increased, with firms greater than $5 billion (5.1 percent of all funds) now managing over 62 percent of industry capital. Larger funds narrowly outperformed smaller funds during both 1Q10 and 2009, with the asset-weighted version of the HFRI Fund Weighted Composite Index gaining +2.8 percent and +20.3 in those periods, respectively.

The percent of funds which reached their respective high watermark in the trailing twelve months rose to 52.2 percent. In addition to an increased interest in allocating via separately managed accounts, investors continue to demonstrate interest in UCITS III complaint vehicles; HFR now tracks nearly 400 UCITS III fund products.

“In contrast to the environment of the last two years, the drivers of hedge fund performance have recently shifted to tightening corporate credit, declining equity market volatility, currency adjustments and rising sovereign credit risk,” said Ken Heinz, President of HFR. “While allocations reflect continuing trends in Event Driven & Arbitrage strategies, investors are also focusing on fund structure and transparency, as well as new opportunities presented in currency, commodity and fixed income markets.”

Chicago-based HFR Group L.L.C., founded in 1993, is a global leader in the provision of hedge fund data, research, indexation and asset management. The HFR Group of companies includes Hedge Fund Research, Inc., and HFR Asset Management L.L.C. Hedge Fund Research produces the HFR Database, considered to be the definitive source of hedge fund performance and information. HFR also distributes the HFRI and HFRX Indices – the premier benchmarks for hedge fund industry performance.


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