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The Preqin All-Strategies Hedge Fund Benchmark was up 7.81% in Q1 2021, compared with 5.77% for the S&P 500 PR Index, which experienced a volatile quarter. Overall, hedge funds showed their worth to investors, despite structural changes in the market, and had the best first quarter since 2006.

Looking forward, inflation will likely remain a hot topic among investors in Q2 as more stimulus money flows into global markets. Economists are closely tracking producer price indices (PPIs) and consumer price indices (CPIs) globally, as any increase in interest rates could potentially impact valuations if earnings do not catch up with the interest rate moves. This could lead to significant rotations in portfolios and create volatility in the markets - which will largely be welcomed by hedge fund managers.

Sam Monfared, AVP, Research Insights, at Preqin, comments: "While hedge funds have continued their strong positive momentum in Q1, the industry has experienced a challenging quarter. The influx of retail money into equities, along with the fear of inflation and higher rates, rattled the markets. The additional volatility created opportunities for hedge fund managers, and many benefited from the sharp moves in the market. Despite all these challenges, optimism has certainly returned to the industry with recent positive capital inflows being a strong indication of such. In short, 2021 is shaping up to be a great year for hedge funds."

Key Q1 2021 hedge funds facts include:

• Equity strategies dominate as credit falls out of favor:
o 42% of new launches were equity managers, up 13 percentage points on Q4 2020
o Only 7% of new launches in Q1 were credit hedge funds
o Macro strategies launches declined in Q1 2021, and accounted for only 5% of new funds, down from 13% in Q4 2020

• Asia-Pacific markets are further along their path to recovery and are capturing investors' attention, with APAC having experienced a 9% increase in fund launches compared with Q4 2020

• 84% of investors are intending to invest less than $50mn of fresh capital into hedge funds over the next 12 months

• Whilst no new CTA funds came to market in Q1, 28% of investors are planning to target CTAs over the next 12 months

Press release
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