•  
• Tweet
•  
•  
•        Print
•  
•        Email
•  
•         Track Keywords

Investors allocated $30.5 billion of new capital to the hedge fund industry in 2Q14, surpassing the $26.3 billion that was allocated in 1Q and the largest quarterly inflow since investors allocated $32.5 billion in 1Q11.

The inflow of $56.9 billion in the first half of 2014 increased total hedge fund industry capital globally to over $2.8 trillion, surpassing the previous record of $2.7 trillion from the prior quarter. The HFRI Fund Weighted Composite Index® gained +2.0 percent in 2Q14 and +3.2 percent for 1H, led by gains in Relative Value Arbitrage and Event Driven strategies.

Inflows for 2Q14 were led by fixed income-based Relative Value Arbitrage (RVA) strategies, which received $18.3 billion of new investor capital, increasing total assets invested in RVA hedge funds to $742.6 billion globally. Through the first six months of the year, RVA experienced inflows of $29.5 billion to lead all strategies, while the HFRI Relative Value Arbitrage Index leads industry strategy performance YTD, with a gain of +4.8 percent. The largest component of recent inflows into RVA strategies was to Credit Multi-Strategy managers, with investors allocating $9.7 billion in 2Q and $19.4 billion in the first half; the HFRI RV: Multi-Strategy Index has gained +3.2 percent YTD.

Encouraged by the accelerating M&A environment and dynamic shareholder activist trends, investors allocated $11.7 billion of new capital to Event Driven (ED) strategies in 2Q14, bringing 1H inflows to $15.7 billion. Recent inflows and performance gains increased total ED capital to $756 billion globally, as the HFRI Event Driven Index gained +4.4 percent through 1H14. The largest ED inflows were to Activist and Distressed sub-strategies, with Activist receiving inflows of $5.9 billion for 2Q and $9.4 billion for the first half, while Distressed saw inflows of $3.4 billion and $4.4 billion, respectively, for 2Q and the first half of the year. The HFRI Distressed Index leads ED sub-strategies YTD through June with a gain of +5.4 percent, while the HFRI Activist Index has gained +2.8 percent YTD.

Record equity valuations continue to drive inflows into Equity Hedge (EH) strategies, with EH receiving $4.9 billion of new capital for 2Q14 and $21.3 billion total through the first six months of 2014. Recent inflows and performance gains increased EH assets to $781 billion, the largest strategy capital area, as the HFRI Equity Hedge Index has gained+3.3percent YTD through June,effectively navigating both the technology-centricvolatilityincreasesandtherecentabsenceofequitymarketvolatility. Equity Hedge sub- strategy inflows were led by Fundamental Value sub-strategies, with these receiving $3.2 billion of new capital in 2Q and a total of $8.2 billion YTD.

Investors redeemed $4.3 billion of capital from Macro strategies in 2Q14, bringing YTD Macro outflows to $9.6 billion and total capital invested in Macro to $521 billion. Macro has endured a difficult performance environment in recent years and has posted three consecutive calendar years of declines. Despite this, the HFRI Macro Index gained +0.9 percent in the first half of 2014. Investors redeemed $3.7 billion in 2Q from quantitative, trend-following Systematic Diversified/CTA strategies, bringing 2014 outflows for these funds to $5.8 billion. Partially offsetting these Macro outflows, investors allocated $1.3 billion to Discretionary Macro strategies in 2Q14.

Investors also allocated new capital to Fund of Hedge Funds, with FOF experiencing inflows of $565 million for 2Q14, the first quarterly inflow since 1Q11. With 2Q inflows offsetting an outflow of $375 million in 1Q, FOF have experienced inflows of $190 million YTD, increasing total capital invested in FOF to over $670 billion.

By firm size, investors allocated aggressively to the industry’s largest and most well-established firms, with firms managing in excess of $5 billion receiving $21.2 billion of new capital in 2Q14, while firms managing between $1-5 billion received net allocations of $8.55 billion. Collectively, all firms managing less than $1 billion in assets received less than $750 million in net inflows in the quarter. Through the first half of 2014, $52.2 billion of the $56.9 billion in net inflows was allocated to firms with greater than $1 billion in AUM. “The allocation environment from early 2014 accelerated through mid-year as investors and fund managers alike positioned strategically for the complex dynamics associated with an imminent end to US Federal Reserve stimulus measures, escalating geopolitical tensions, active participation in transactional M&A and extended valuation levels in equity markets,” stated Kenneth J. Heinz, President of HFR.

“Sophisticated allocators are actively using the recent increase in market risk tolerance and the commensurate decline in implied volatilities to adjust portfolio exposures to opportunities likely to emerge in 2H14 as each of these powerful trends evolves. The record growth of industry capital clearly demonstrates that the requirement for dynamic exposures to all of these market trends via sophisticated, established and innovative hedge fund strategies has never been more imperative or in greater demand by investors.”

press release

www.HedgeFundResearch.com

Bg