Despite their volatile performance in Q2 2011, hedge funds attracted almost $30 billion in new allocations, bringing the level of capital invested in the global industry to a record $2.04 trillion.
According to Hedge Fund Research’s latest report, inflows in H1 2011 were in excess of $62 billion, the industry’s strongest half-year total since H2 2007, when investors entrusted $75 billion to the asset class.
Strong second quarter inflows offset a modest performance-based asset decline, says HFR.
Investors in Q2 showed a decided preference for macro and relative value strategies which were on the receiving end of over $20 billion of the new allocations. In terms of performance, however, relative value strategies gained 0.76% in Q2, while macro strategies declined 1.7%.
Investors were also keen on systematic, quantitative strategies, investing $10 billion in new capital across various sub-strategies, including macro: systematic diversified. Equity hedge strategies experienced inflows of only $1.7 billion in new capital in Q2, bringing the YTD inflow total for equity hedge to $8.1 billion, the lowest of the four main strategy groups.
After watching $4.8 billion flow out in Q1, fund of funds saw a net withdrawal of $2.1 billion in Q2. The HFRI Fund of Funds Index declined 1.2% for the quarter.
Big funds were the biggest winners in the second quarter of 2011—those with assets over $5 billion attracted about two-thirds of the new inflows and now manage about 62.4% of all industry capital.
“Financial markets continue to be dominated by uncertainty and volatility, and investors are allocating to hedge funds, expecting and anticipating this uncertain environment to persist. The many catalysts in this environment, including the European sovereign debt crisis, the debate surrounding the U.S. debt ceiling, accelerating Asian inflation, fallout from bank stress tests, and mixed U.S. employment and housing statistics, suggest risk is changing faster and more dynamically than ever before,” said Kenneth J. Heinz, president of HFR. “Hedge fund investors are now more sophisticated than ever and are allocating to areas such as macro, relative value and various quantitative strategies in anticipation of opportunities to be created by transition, volatility and risk.”