The HFRI Fund Weighted Composite Index gained 2.56 per cent in quarter one, bringing the industry within two per cent of its previous high watermark reached in October 2007, according to data by Hedge Fund Research.
During the quarter, investors allocated USD13.7bn of new capital to the global hedge fund industry; this combined with a performance-based asset increase of USD54bn bringing total industry capital to USD1.67trn.
All four main strategy areas experienced asset growth in the period, led by event driven strategies into which investors allocated USD5.6bn of new capital. Performance for the strategy was strong as well, with the HFRI Event Driven Index up 4.7 per cent for the quarter, driven by significant contributions from activist and distressed sub-strategies.
The smallest net inflow occurred in macro strategies, with these receiving less than USD1bn of new capital. Macro funds posted only a modest gain of 0.2 per cent for the quarter, with performance undermined by commodity weakness, falling volatility and a lack of persistent trends across asset classes.
Equity hedge and relative value strategies also posted both asset and performance gains for the quarter, with relative value completing 1Q10 with 15 consecutive months of performance gains.
While 60 per cent of all funds experienced net inflows for the quarter, inflows were concentrated in the industry’s largest firms. Investors allocated USD14.9bn to firms with greater than USD5bn in assets under management, while firms managing between USD500m and USD5bn experienced net outflows of USD3.7bn combined.
The overall concentration of industry assets increased, with firms greater than USD5bn (5.1 per cent of all funds) now managing over 62 per cent of industry capital. Larger funds narrowly outperformed smaller funds during both 1Q10 and 2009, with the asset-weighted version of the HFRI Fund Weighted Composite Index gaining 2.8 per cent and 20.3 per cent in those periods, respectively.
The per cent of funds which reached their respective high watermark in the trailing 12 months rose to 52.2 per cent. In addition to an increased interest in allocating via separately managed accounts, investors continue to demonstrate interest in Ucits III complaint vehicles; HFR now tracks nearly 400 Ucits III fund products.
“In contrast to the environment of the last two years, the drivers of hedge fund performance have recently shifted to tightening corporate credit, declining equity market volatility, currency adjustments and rising sovereign credit risk,” says Ken Heinz, president of HFR. “While allocations reflect continuing trends in event driven and arbitrage strategies, investors are also focusing on fund structure and transparency, as well as new opportunities presented in currency, commodity and fixed income markets.”
