Investor inflows hit USD9 billion as hedge funds see trade volumes surge in Q1

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Event driven strategies topped the hedge fund performance chart during the first three months of the year, as the industry drew some USD9 billion in new capital in Q1 and saw trading volumes surge, new analysis by hedge fund asset administrator Citco shows.

Citco Fund Services’ ‘2021 Q1 Hedge Fund Report’ probed strategy performance, investor flows and trading volumes, among other things.

The study found that close to three-quarters – 73.4 per cent – of hedge funds delivered a positive return during Q1 as the strong performances at the end of 2020 carried through into the new year.

The quarterly report noted that event driven strategies led the pack during the three months to the end of March, with a weighted average return of 8.25 per cent for the quarter. Overall, the industry notched up a 2.75 per cent weighted average gain.

Positive outliers across event driven, commodities and macro strategies drove average gains higher, Citco said. As oil markets spiked in the early months of the year, commodities strategies rose 7.24 per cent, as global macro funds climbed 5.31 per cent during the three-month period.

Though equity-based funds were bottom of the pile, they still managed to generate a 1.65 per cent gain. Within equities, long bias performed better at 5.45 per cent, while equity long/short managers scraped a 0.42 per cent gain.

The dispersion in returns between the top performers (90 percentile) and bottom performers (10 percentile) was 19.3 per cent for the year, Citco’s research showed.

Citco, which provides asset servicing solutions to the global hedge fund and alternative investment industry, recorded total net inflows of USD9 billion in the first quarter, with sizeable commitments during January and February ultimately outweighing net withdrawals in March.

But while the biggest hedge funds pulled in the bulk of investor capital last year, Q1 2021 saw emerging managers in the sub-USD1 billion and sub-USD5 billion bracket attract all of these inflows. Managers with more than USD5 billion were flat for the quarter, Citco said.

Strategy-wise, global macro, multi-strategy and hybrid funds absorbed the bulk of new capital, while geographically Asian and European managers accounted for all the net inflows, with North American funds seeing outflows over the quarter.

Citco, which has USD1 trillion of assets under administration, also noted record trading volumes over the quarter, with March volumes topping the “unprecedented highs” of Q1 2020 – at the start of the coronavirus crisis – by 4.1 per cent.

While high daily volumes in the same period last year were fuelled by a handful of exceptional trading sessions, volumes in 2021 remained “consistently high” throughout this period.

“Only time will tell if these record volumes speak to increased investor appetite for hedge funds, however – with a notable uptick in activity across the sector in terms of new starts – the portents are encouraging,” Declan Quilligan, head of hedge fund services, noted in the report.