HFR: Hedge Fund Industry Assets Hit Record $3.15T In Third Quarter

Oct 19 2017 | 11:05pm ET

Eleven consecutive months of gains and net capital inflows have enabled hedge fund industry assets to hit a record $3.15 trillion in the third quarter, according to new data from Hedge Fund Research.

The asset gains have taken place as active capital rotates into alternatives amid record equity index levels, HFR said on Thursday. The third quarter asset tally was the fifth consecutive record quarterly level, increasing by $50 billion over Q2/17 and driven by net investor inflows of $1.7 billion as allocations offset both investor redemptions and the return of investor capital by certain managers. Though the YTD inflow total of $2.5 billion remains muted, it represents a sharp reversal from the $70 billion of investor outflows in 2016.

Other asset flows highlights from HFR:

  • Continuing the trend from the prior quarter, Macro strategies led inflows for 3Q, despite posting only a narrow performance gain for the period. Currency and quantitative, trend-following CTA strategies led investor inflows, with investors allocating $2 billion and $1.8 billion of new capital to these, respectively. Macro funds collectively received net inflows of $4.2 billion for 3Q17, bringing YTD inflows to $10.2 billion and total Macro capital to $587 billion. 
  • Led by dynamic Activist strategies, Event Driven experienced inflows of $3.5 billion for 3Q17, offsetting similar outflows from the prior quarter, bringing YTD inflows to $3.1 billion, and increasing total ED capital to $815 billion. ED sub-strategy inflows were led by Activist strategies, which received $2.3 billion of net inflows, while Distressed strategies received $1.5 billion. 
  • Equity Hedge strategies experienced a net capital outflow in 3Q17 as investors reduced portfolio beta and exposure to record equity markets. An estimated $2.9 billion was redeemed from EH strategies in 3Q, increasing the YTD net outflow to $3.4 billion. Despite the quarterly outflow, total EH capital increased to a record $919 billion on the surge of strong performance, maintaining EH as the industry’s largest area of capital. An outflow of $6.6 billion from EH: Fundamental Value strategies were only partially offset by $1.9 billion of inflows into EH: Quantitative Directional. 
  • Fixed income-based Relative Value Arbitrage strategies also experienced a net outflow in 3Q17, with investors redeeming $3.1 billion, though total RVA capital increased to a record $830 billion. Investors reduced exposure to credit multi-strategy funds in 3Q, as these saw an estimated $3.4 billion of outflows, representing the third consecutive quarter of outflows, and bringing YTD net redemption to $9.7 billion. Only partially offsetting this, RVA: Sovereign strategies experienced an inflow of $650 million in 3Q17. 
  • Flows by firm size continued to slightly favor both the largest and smallest funds in the industry, with firms managing greater than $5 billion receiving an estimated $1.2 billion in 3Q, while those managing less than $1 billion collectively also experienced inflows of $1.2 billion. Firms managing between $1 and $5 billion experienced a small outflow of $700 million.

“The hedge fund industry continued the powerful process of performance, growth, expansion and evolution which has defined recent quarters, including investor-friendly trends toward lower fees and improved liquidity, as well as the proliferation of regulated vehicles and alternative beta strategies,” stated Ken Heinz, president of HFR, in a news release. 

“Many institutions and investors continue to explore the increased use of alternatives and alternative beta as mechanisms to insulate portfolios from potential market corrections,” he added. “We expect these trends to continue through year-end, driving industry growth into 2018.”

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.

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