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HFR: Investors allocated $4.1bn to hedge funds in 2Q12, but total industry AuM declined 1.3% (to 2.1tln)

Thursday, July 19, 2012
Opalesque Industry Update – Investors continued to allocate new capital to the hedge fund industry in 2Q12, exhibiting a clear and continued preference for strategies with characteristically low exposure to global equity markets, according to the latest HFR Global Hedge Fund Industry Report, released today by HFR, the global leader in the indexation and analysis of the hedge fund industry.

Investors allocated $4.1 billion in net new capital to hedge funds in 2Q12, bringing net inflows in 1H12 to over $20 billion. Despite the inflow, total hedge fund capital pulled back from the record level set in 1Q12 as a result of the -2.7 percent performance of the HFRI Fund Weighted Composite Index in 2Q12, resulting in a total industry capital decline of -1.3 percent from $2.13 trillion to $2.10 trillion.

Consistent with the trend from prior quarters, 2Q12 inflows remained concentrated in the industry’s largest firms, with over $11 billion allocated to firms with greater than $5 billion in AUM, while firms with less than $5 billion experienced a net redemption of approximately $6.9 billion. Inflows in 1H12 exceeded the $8.5 billion in inflows from 2H11 but were only approximately one-third of the $62 billion in net inflows from 1H11. Approximately 30 percent of all funds experienced inflows in 2Q12 with these totaling $43.3 billion in total net inflows, while 70 percent of all funds experienced net outflows, totaling $39.2 billion.

Investors also continued to exhibit a preference for Fixed Income-based Relative Value Arbitrage (RVA) strategies in 2Q12, allocating nearly $10 billion to these funds, with a high concentration to RVA: Multi-Strategy funds. The HFRI Relative Value Index gained +4.2 percent in 1H12, leading other hedge fund strategies, and RVA has posted positive monthly performance in 35 of 42 months since December 2008. Total hedge fund capital in Relative Value strategies increased to $555 billion as of the end of 2Q12, approaching the $570 billion invested in Equity Hedge, the industry’s largest strategy area. Equity Hedge experienced a net redemption for 2Q12 of $1.3 billion; the HFRI Equity Hedge Index gained +2.2 percent in 1H12.

Reversing the inflow from the prior quarter, investors withdrew $3.5 billion from Macro strategies, with outflows concentrated in CTA and Currency strategies. Ending the first half with a June decline of -1.4 percent, the HFRI Macro Index posted a decline of -0.5 percent for 1H12. Despite a gain of +2.5 percent in 1H12, Event Driven strategies experienced a modest withdrawal of $900 million in 2Q.

“Hedge fund performance and capital flows in 1H12 reflect the fluid and volatile environment driven by the continuing European sovereign debt crisis and the recent softening of US economic data. Hedge fund gains in 1H12 also represent an important bifurcation of investor views regarding near term economic growth prospects, with equity market gains suggesting an improved outlook while historically low fixed income yields suggest an elevated risk of muted growth,” stated Kenneth J. Heinz, President of HFR. “The hedge fund industry has evolved as an integral component of institutional allocations, allowing investors to pursue target return objectives in a transparent, risk-controlled environment, while acting as a liquidity provider and market risk participant. As financial institutions retrench from many lending and trading activities, hedge funds are likely to experience continued growth and expansion in 2H12 as a result of these trends.”

HFR launches 3 new HFRX Indices
HFR is pleased to launch the following new HFRX Indices, expanding the family of HFRX Indices to 76. Consistent with many of the current HFRX Indices, each of the following includes daily performance transparency. For more information, please visit www.hfrx.com

HFRX Emerging Markets Composite Index includes multiple hedge fund strategies with geographic exposure to one or more Emerging Markets regions and combination of asset classes with emphasis on global macroeconomic, political or specific secular market growth trends.
HFRX Fixed Income - Credit Index includes strategies with exposure to credit across a broad continuum of credit sub-strategies. The investment thesis across all strategies is predicated on realization of a valuation discrepancy between the related credit instruments.
HFRX MLP Index includes Master Limited Partnership strategies which are typically exchange listed partnerships that engage in certain businesses, mostly pertaining to the transportation, extraction and storage of certain commodities and natural resources including, but not limited to, oil, natural gas and coal.

(press release)

HFR (Hedge Fund Research, Inc.) is the global leader in the alternative investment industry, specializing in the indexation and analysis of hedge funds.

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