Total hedge fund assets surpass $2.4 trillion, led by credit-sensitive Event Driven strategies;
Number of hedge funds surpasses 10,000 for first time since 2006
Total capital invested globally in hedge funds increased to a record level for the fourth consecutive quarter in 2Q13, according to the latest HFR Global Hedge Fund Industry Report, released today by HFR, the established leader in indexation, analysis and research for the global hedge fund industry. The growth in assets in 2Q13 extended a streak of steady increases in hedge fund capital despite a surge in financial market volatility into quarter end.
Total hedge fund capital increased by a net total of $40 billion in 2Q13 to a record $2.41 trillion. Hedge funds that took in new capital saw inflows of $55.9 billion during the quarter, while funds that experienced redemptions booked outflows totaling $41.4 billion, resulting in a net inflow of $14.5 billion, which is in line with the 1Q13 inflow of $15.2 billion. Sixty percent of all hedge funds experienced net inflows for 2Q13 while forty percent experienced outflows. The first half 2013 inflow of $29.8 billion surpassed 1H inflows in 2012 ($20.4 billion) and nearly matched the full year 2012 total of $34.4 billion. The total number of hedge funds increased to over 10,000 funds for the first time since 2006, at which time a record number of 10,096 funds existed.
As the quarter concluded with a sharp rise in bond yields and widening high yield credit spreads, investors exhibited a preference for credit and interest rate sensitive Event Driven and Relative Value Arbitrage strategies, with these receiving over $14 billion of combined inflows in 2Q and nearly $25 billion in inflows for 1H13. With contributions from high performing Activist strategies and a dynamic M&A and corporate actions environment, the HFRI Event Driven Index led other main strategy areas for both 2Q and 1H13, gaining +1.8 and +5.7 percent, respectively. Recent inflows represent a reversal for Event strategies, which experienced net outflows of $6.6 billion in 2012. HFRI Relative Value Arbitrage Index was the leading area of both performance and capital inflows in 2012, posting a gain of +10.6 percent and inflows of over $41 billion, increasing Relative Value Arbitrage to the largest strategy area of hedge fund capital. The HFRI RV: Yield Alternatives Index is the leading sub-strategy area of hedge fund performance for 2013, posting a YTD gain of +12.1 percent through June.
Investors allocated $3.6 billion of new capital to Macro strategies in 2Q13, despite the HFRI Macro Index posting a decline of -0.5 percent for 1H13. Investors withdrew net $1.3 billion from Equity Hedge strategies in 2Q13, partially reversing a similar inflow from 1Q13 and resuming the EH outflow trend from 2012. HFRI Equity Hedge Index gained +5.3 percent in 1H13, although sub-indices HFRI Sector: Technology/Healthcare and Fundamental Value gained +8.9 and +8.6 percent, respectively.
Positive capital inflows occurred across all fund sizes, with firms below $500 million in AUM experiencing combined inflows of approximately $2.4 billion. The industry’s largest firms, those in excess of $5 billion in AUM, experienced net inflows of $6.1 billion, while firms between $1 and $5 billion experienced inflows of $5.8 billion. Investors withdrew $4.6 billion from Funds of Hedge Funds in 2Q13, bringing FY13 FOF redemptions to $9.6 billion.
“Hedge fund performance and capital flow trends reflect the contrast between the strong equity gains of 1Q13 and the sharp increases in bonds yields to conclude 2Q13, as investors exhibited a preference for exposures to powerful M&A and Special Situations trends and long/short exposure to credit and fixed income strategies, while reducing directional equity market exposure,” stated Kenneth J. Heinz, President of HFR. “Hedge fund managers and investors continue to position for a post-QE environment dominated by fundamental, mean-reverting and trend-following factors, with these in contrast to the macro policy and stimulus-dominated environment of recent quarters. As this environment develops, and concurrent with relaxation of certain marketing restrictions on hedge funds, investor preferences for sophisticated, specialized long/short exposure to these shifting dynamics are likely to drive hedge fund industry growth in 2H13.”