New data from Hedge Fund Research Assets shows assets under management in the hedge fund industry rose to a third consecutive quarterly record in the first three months of this year, as inflows to event-driven and systematic macro strategies increased and outflows diminished.
Total capital in the industry totaled $3.07 trillion at the end of March, a quarterly increase of $47.2 billion or +1.6%, according to HFR’s latest Global Hedge Fund Industry Report. For the trailing 12 months, total hedge fund capital has increased by +7.3%.
Investor outflows in 1Q17 slowed to the lowest level since 4Q15, HFR reported. Net asset inflows to Event Driven and Macro strategies were offset by outflows from Equity Hedge and Relative Value Arbitrage strategies. Total industry net outflows slowed to $5.4 billion in 1Q17, the lowest quarterly outflow since $1.5 billion was redeemed in 4Q15; this follows an outflow of $70.1 billion for FY 2016, the largest calendar year outflow since 2009.
Other highlights from HFR’s latest hedge fund industry report:
- Total capital invested in Event Driven (ED) strategies increased by $16.2 billion to end 1Q17 at $793.5 billion, as investors allocated nearly $3.5 billion to ED in the quarter. The 1Q17 inflow to ED strategies is the first quarterly inflow since 3Q15 and represents a trend reversal from 2016, in which investors withdrew $38.1 billion from ED hedge funds. ED inflows were concentrated in diversified Multi-Strategy and Distressed sub-strategies, with these receiving $5.2 and $1.6 billion in 1Q17, respectively.
- Macro strategies also experienced inflows in 1Q17, with gains concentrated in quantitative, trend- following Systematic Macro CTA. Total capital invested in Macro strategies increased by $4.0 billion to end 1Q17 at $579.2 billion, as investors allocated $730 million of net capital to Macro funds.
- Systematic strategies led Macro sub-strategy net inflows with $4.9 billion of new capital, bringing sub-strategy assets to $294 billion; 1Q17 represents the fourth consecutive quarter of net inflows for CTAs, totaling over $15 billion of new capital in the last year. The inflows to CTAs were offset by outflows of $3.8 billion from Discretionary Macro strategies, the fifth consecutive quarter of outflows from Discretionary Thematic funds.
- Equity Hedge strategies, the largest area of hedge fund strategy capital, posted the biggest asset increase of the four main hedge fund strategies in 1Q17, as strong performance drove assets to $870.7 billion, an increase of $21.6 billion. The capital growth in EH strategies was partially offset by investor outflows of $4.3 billion in 1Q17, as investor outflows were concentrated in Fundamental Growth and Fundamental Value sub-strategies, which experienced outflows of $3.6 billion and $2.8 billion, respectively. Partially offsetting these redemptions, Quantitative Directional and Equity Market Neutral funds received $1.7 and $1.3 billion of new investor capital, respectively.
- Total hedge fund capital invested in fixed income-based Relative Value Arbitrage strategies, the industry’s second largest area of strategy capital, increased by $5.4 billion in 1Q17 to $822.2 billion. The capital increase, driven by performance-based gains, was offset by investor outflows of $5.4 billion. RVA outflows were concentrated in Multi-Strategy funds, which experienced a net outflow of $3.6 billion in 1Q.
- Quarterly net outflows by firm size were concentrated in the industry’s largest firms, as firms managing greater than $5 billion experienced outflows of $5.9 billion. Firms managing between $1–5 billion saw net outflows of $500 million, while firms managing less than $1 billion received net inflows of $900 million.
“Hedge fund capital increased to an impressive third consecutive quarterly record, extending the recent growth trajectory and following the most challenging year of capital withdrawals since post-financial crisis in 2009,” stated Kenneth Heinz, President of HFR, in a statement.
“Sophisticated investors continue to strategically position for market trends that drive hedge fund performance, including oscillating patterns of optimism and reversals of the Trump, Yellen, Brexit, and Euro trades, with each of these impacted by the increased possibility of geopolitical tensions and conflict,” he added.
Established in 1992, HFR is a global leader in specializing in the indexation and analysis of hedge funds. The company produces the HFRI, HFRX and HFRU Indices, industry benchmarks for global hedge fund performance, and calculates over 100 indices ranging from industry-aggregate levels down to specific, niche areas of sub-strategy and regional investment focus.