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The HFM Global Composite was down -0.2% in Q1 against a reversal of 4.9% for large-cap US stocks. Additionally, 60% of BDC hedge funds reported positive returns during Q1, which will bolster investor relations teams' confidence and pitches during the rest of H1 2022.

The key moment in Q1 was in late February when Russia invaded Ukraine, creating a generational geopolitical crisis and vast humanitarian tragedy while also displacing the pandemic as an event of seismic historic and economic consequence. Unsurprisingly, managed futures and macro funds were a primary beneficiary of the resulting market volatility, with the standout Haidar Jupiter Fund returning 148.7% during Q1 2022.

Managed futures funds were up 7.8% during Q1 with macro returning 3.0% in a portent of what investors can expect during Q2. The economic and political consequences of the invasion upset bullish expectations about the recovery, central banks' policy and created large market reversals and dislocations. The secondary and collateral impact on national economies and companies will be felt for years to come.

Inflows remain positive

After adding $31bn in 2021, the industry continued to attract net inflows in Q1 2022. An estimated $11.2bn flowed into the industry, with macro gaining $8.5bn and managed futures attracting $4.3bn. After a challenging few years, macro funds have benefited from the price dislocations and commodity instability caused by the war in Ukraine.

Equity and event-driven were hit badly in Q1, shedding $10.8bn in a sign that investors may see a market top approaching and a related downturn in deal flow. At times like these, equity valuations can seem disconnected from other asset classes, let alone from global events, but long/short equity funds were down 3.5% during Q1 with further downside expected during Q2. The US CPI hit 7.9% - its highest level in forty years - and the fear of high inflation means there is a threat that consumers will respond to lower disposable income by curtailing spending.

A key issue is how isolated any US recovery is from the military and economic fallout from the Russian-Ukraine crisis. Initial signs are that household and corporate economic health remains strong despite the undoubted disruption to supply chains, and, on current trends, it appears that the Ukraine crisis will not delay the Fed's monetary tightening policy.

Launch momentum maintained

The hedge fund industry still has a compelling story to tell at the start of Q2 2022 despite the global market turmoil. European hedge fund activity picked up in H2 2021 as the backlog of new funds started trading. As well as this, pent-up demand from those investors who put search activity on hold during 2020 and 2021, along with high manager turnover, will ensure that new funds are as well placed to capitalize as established firms.

Launch numbers reached 86 during Q1 2022. This continues a recovery in activity in 2021, where With tracked at least six hedge fund startups raising assets of $1bn or more in what was another nearterm record for the industry. By comparison, 2020, 2019 and 2018 saw four, five and four billion-dollar launches, respectively. More funds are set to join the billion dollar club ranks this year, mostly notably Alex Karnal's $3.5bn hybrid healthcare fund, Braidwell.

A notable launch is former TCI partner Oscar Veldhuijzen's OCAP Partners' new long/short equity hedge fund. Other notable startups include former Two Sigma CRO Senthil Sundaram's Kula Investments.