Total hedge fund industry capital has passed the USD4 trillion milestone to begin 2022, with managers navigating a volatile Q4 21 driven by another wave of coronavirus variant, as well as rising interest rates and increased expectations for additional increases in 2022.
Total hedge fund industry capital has passed the USD4 trillion milestone to begin 2022, with managers navigating a volatile Q4 21 driven by another wave of coronavirus variant, as well as rising interest rates and increased expectations for additional increases in 2022.
Total hedge fund capital rose increased to an estimated USD4.01 trillion to begin 2022, representing an increase of over USD400 billion from the start of 2021, as reported by HFR in the latest release of the HFR Global Hedge Fund Industry Report. As reported previously, total hedge fund industry capital has soared by over USD1 trillion in the trailing seven quarters since falling below USD3 trillion in Q1 20 as the global pandemic began.
The HFRI Fund Weighted Composite Index (FWC) posted a gain of +0.5 per cent for 4Q21, bringing the FY 2021 performance to +10.3 per cent. The 2021 gain trails only the prior two years as the strongest years of performance since 2009. The investable HFRI 500 Fund Weighted Composite Index gained +9.9 per cent for the full-year 2021
Event-Driven (ED) strategies, which categorically focus on out of favour, often heavily-shorted, deep value equity and credit positions, extended asset increases through year end, with capital rising over USD155 billion in FY 2021 to surpass USD1.115 trillion, trailing only Equity Hedge as the largest strategy area of capital. ED sub-strategy capital increases were led by Special Situations and Activist funds in 4Q21, which together increased nearly USD22.0 billion in the quarter, with total capital in Special Situations rising to nearly USD510 billion. The investable HFRI 500 Event-Driven Index rose +2.1 per cent in 4Q and +14.5 per cent for 2021, the leading area of strategy performance; ED sub-strategy performance was led by the HFRI 500 ED: Activist Index which surged +20.3 per cent in 2021.
Total capital invested in Equity Hedge (EH) strategies experienced an increase of over USD133 billion for 2021, bringing total EH capital to a record USD1.227 trillion to begin 2022, as managers navigated intense volatility and rapidly evolving market cycles driven by coronavirus, accelerating inflation and rising interest rates. EH sub-strategy net asset inflows for 2021 were led by Fundamental Value and Equity Market Neutral, with these receiving estimated net allocations of USD5.2 and USD2.1 billion, respectively, which were offset by outflows in Quantitative Direction strategies, which experienced outflows of USD12.4 billion. The investable HFRI 500 Equity Hedge (Total) Index posted a +1.9 per cent return in 4Q, bringing YTD performance to +11.5 per cent. Concurrent with surging energy and commodity prices, as well as accelerating inflation, EH sub-strategy gains for 2021 were led by the HFRI EH: Energy/Basic Materials Index, which surged +24.7 per cent on the year and has vaulted nearly +100 per cent since the beginning of the global pandemic quarantine in March 2020.
As interest rates rose to conclude 2021 as they did throughout 2H21, capital managed by credit- and interest rate-sensitive fixed income-based Relative Value Arbitrage (RVA) strategies increased by over USD86 billion for FY 2021, to begin 2022 at USD1.027 trillion. As investors positioned for higher interest rates, RVA led main strategy net inflows for FY with USD15 billion of new allocations; capital invested in RV: Multi-Strategy funds increased by an estimated USD48 billion in 2021 to begin 2022 at nearly USD600 billion AUM. The investable HFRI 500 Relative Value Index gained +6.6 per cent for 2021, while the HFRI Relative Value (Total) Index returned +7.5 per cent. The HFRI RV: Yield Alternatives Index led all sub-strategy indices for 2021, surging +30.5 per cent.
Total capital invested in Macro strategies rose over USD33 billion in 2021 to end the year at USD637.1 billion AUM, led by increases in Systematic Diversified/CTA and Commodity strategies, with these rising USD20.7 and USD5.2 billion, respectively for 2021. Like RVA, Macro also experienced net inflows for 2021, with investors allocating an estimated USD3.1 billion of new capital during the year, led by USD2.6 billion of inflows to Discretionary Thematic funds. Driven by commodity gains, the HFRI Macro (Total) Index gained +7.6 per cent for 2021, while the investable HFRI 500 Macro: Commodity Index led Macro sub-strategy performance with a +26.35 per cent return.
Following five consecutive quarters of the industry’s largest firms leading mid- to small firms in inflows, investors reversed this trend in Q4 21, with the largest firms experiencing an estimated net outflow of USD7.4 billion during the quarter. Firms managing between USD1 billion and USD5 billion experienced a modest outflow of USD113 million, while firms managing less than USD1 billion experienced outflows of USD1.3 billion over the quarter. For the full year 2021, firms managing greater than USD5 billion received an estimated USD5.7 billion, while mid-sized firms managing between USD1 billion and USD5 billion experienced net inflows of USD3.94 billion, while firms managing less than USD1 billion collectively saw estimated inflows of USD5.5 billion over the year.
