Hedge fund assets surging as investor redemptions ease amid performance recovery

Financial data

Hedge fund assets have risen sharply in the past three months, as strategy performance recovers and investors scramble to capitalise on opportunities emerging amid the post-Covid sell-off environment.

The total amount of capital invested in hedge funds globally swelled by USD220 billion between April and June - a quarterly record – to reach some USD3.177 trillion overall, according to new data published by Hedge Fund Research.

The surge was driven both by improving strategy performance – HFRI’s Fund Weighted Composite Index gained more than 9 per cent in Q2, its best quarterly performance since the global financial crisis – and falling investor redemptions, as outflows dropped 65 per cent between Q1 and Q2 this year.

Following the pandemic-driven Q1 redemption bloodbath, when investors yanked more than USD33 billion from hedge funds, redemptions eased to USD12.2 billion (0.3 per cent of total industry capital) in Q2 this year, as markets rallied and hedge fund performance improved.

HFR said investors rotated and rebalanced capital as a result of the pandemic, and are now positioning around opportunities in the second half of this year.

“Extreme volatility in H120, including both the Q1 spike and Q2 reversal, represents a sharp and dramatic contrast to the beta-driven, risk-on sentiment which dominated 2019, creating an opportunity-rich environment for long/short hedge fund performance generation,” HFR president Kenneth Heinz said on Monday.

Combined investor inflows to all funds experiencing inflows totaled USD35.6 billion, while total outflows from funds experiencing withdrawals reached USD47.8 billion.

Equity hedge funds grew their capital by USD95.5 billion to end Q2 at USD925.4 billion, despite investors pulling out USD4.5 billion.

Event driven managers also enjoyed a strong asset surge in Q2. They added USD75.9 billion to reach USD814.7 billion in total, despite suffering USD2.3 billion worth of investor outflows.

Macro-themed strategies meanwhile saw a USD8.1 billion in performance-based gains in Q2, though investors withdrawing USD3.5 billion during the quarter, as total macro capital reached USD565.1 billion.

Heinz noted how performance has been particularly strong among hedge fund strategies focused on technology, activism and corporate fixed income.

Looking ahead, he added: “While capital levels increased sharply in Q2, it is likely that asset gains continue into H2 alongside inflows from institutional investors that position for continued virus uncertainty, including humanitarian, economic and geopolitical implications, as well as social unrest and the upcoming US elections, with these thematic drivers contributing to a strong performance environment through year-end.”