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Investors allocated $21.5 billion in net new capital to hedge funds in 2Q15, the largest quarterly inflow since 2Q14, with allocations concentrated in Equity Hedge and Relative Value Arbitrage strategies, as well as in the industry’s largest hedge fund firms.

The second quarter inflow increased 1H15 inflows to $39.7 billion and total industry capital to $2.97 trillion globally, as the hedge fund industry approaches the $3 trillion milestone.

The HFRI Fund Weighted Composite Index® gained +2.53 percent in 1H15, the strongest half-year of outperformance over U.S. equities since 1H10.

Investors expanded their significant commitments to the industry’s largest and most established hedge fund firms, with inflows to firms managing greater than $5 billion totaling $15.7 billion in 2Q15, the highest quarterly inflow to the largest firms since 2Q14. Top firms received nearly $29 billion in new inflows in 1H15, or approximately 71 percent of net new capital allocations. The industry’s largest firms manage approximately 69 percent of total hedge fund industry capital, though these firms represent only 6 percent of the overall number of management firms. Hedge fund firms managing between $1 to $5 billion received inflows of $1.8 billion in 2Q and $5.3 billion in 1H15, while all firms managing less than $1 billion, which total 82% of all hedge fund firms, received inflows of $4 billion in 2Q and $6 billion over the first half of the year.

Equity Hedge dominated strategy inflows in both 2Q and 1H15, with these receiving $11.8 and $21.4 billion over each of these periods, respectively. This increased total Equity Hedge capital to $847 billion at the end of 2Q, making it the largest strategy area and approximately 28.5% of all hedge fund capital. The HFRI Equity Hedge Index gained +4.1 percent in 1H15, also the strongest outperformance for this category versus U.S. equities since 1H10.

Fixed income-based Relative Value Arbitrage (RVA) also received strong inflows from investors in 1H15, with investors allocating $7.0 billion in 2Q and $9.3 billion in 1H15, bringing total capital in RVA strategies to $788 billion, or approximately 26.5% of total industry capital. The HFRI Relative Value Arbitrage Index gained +2.56 percent in 1H15. Similarly, investors allocated $1.8 billion to Event Driven (ED) strategies in 2Q15, bringing total ED inflows in 1H15 to $5.5 billion. Event Driven strategies manage $784 billion globally, or approximately 26.4% of total industry capital, while the HFRI Event Driven Index gained +2.6 percent in 1H15.

Despite the HFRI Macro Index leading all strategy index performance in 2014 with a gain of +5.6 percent, Macro strategies received the smallest inflows from investors in both 2Q and 1H15, with these receiving $857 million and $3.4 billion in each of these periods, respectively. Macro strategies manage $550 billion globally, or approximately 18.5% of industry capital, while the HFRI Macro Index trails all other strategies for 1H15, posting a decline of -0.3 percent for 1H15, driven primarily by a sharp decline of -2.3 percent in June to conclude 1H15.

“Macroeconomic volatility increased to conclude the first half of 2015 with dislocations across China, Greece and oil, as well as on anticipated US Federal Reserve interest rate increases, all contributing to financial asset volatility and increased investor uncertainty entering the second half of the year,” stated Kenneth J. Heinz, President of HFR. “As a result of this, investors have increased allocations to sophisticated hedge fund strategies which reduce equity and fixed income market beta, as well as to the most well-established hedge fund managers. While the US economic expansion has continued, investor risk tolerance has decreased as a function of June volatility, driving capital allocations to the industry’s largest funds in anticipation of strong returns through volatile conditions in the second half of 2015.”

Hedge Fund Research

Press release

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