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Niche strategies, including cryptocurrency hedge funds, accounted for a significantly smaller proportion (12%) of Q2 2022 launches, compared with the first quarter (22%). Conversely, credit strategies' share increased from 5% in Q1 2022 to 12% in Q2.

Preqin's hedge fund benchmark declined by 7.95% during Q2. Ranking historical Q2 returns since 1987 also reveals that this year's decline was the worst Q2 return, the second largest quarterly decline post GFC, and the sixth lowest quarterly return ever recorded by Preqin.

However, hedge funds' performance over the past 12 months (-8.15%) is certainly better when compared with S&P 500's return (-12.52%) during the same interval. Dispersion in performance was significant among hedge fund top level strategies. Relative value and macro hedge funds protected investors during the quarter, declining -0.24% and -1.24%, respectively. Multi strategy (-4.87%) and credit (-4.53%) declined but given the level of volatility in the markets, these two categories performed reasonably well. Equity and event driven hedge funds disappointed investors the most, declining by 9.04% and 7.61%, respectively.

Other key hedge funds Q2 2022 facts:

• Capital allocation: According to Preqin Pro, 79% of investors are intending to invest less than $50mn (the smallest allocation size) of fresh capital in hedge funds over the next 12 months, compared to 74% of investors in Q1 2022. 9% of allocators are planning to invest between $50mn- $99mn, 8% between $100mn-299mn, and 4% are aiming to put over $300mn to work over the next 12 months.

• Regional Performance: Performance was non-uniform across the regions. All regions finished the quarter in negative territory, with APAC-focused managers (-4.94%) declining less than their Europe-focused (-6.34%) counterparts and performing substantially better than North America-focused (-8.47%) managers.

"Lack of attractive returns in 2022 has made investors nervous and is influencing the way allocators think about their hedge fund allocations," Sam Monfared, Vice President, Research Insights at Preqin says. " Market volatility has spiked up and is unlikely to end in Q3. The positive is that plenty of dislocations have formed over the past few months, and this environment could create long term opportunities for the industry and patient investors. Hedge funds have always demonstrated they can navigate through economic challenges, market volatility, and policy changes."

Preqin is a global leader in alternative assets data, tools, and insights.

Press release
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