Total global hedge fund assets increased for the seventh consecutive quarter in Q2 2024, surpassing the previous record high of $4.3tn to reach $4.31tn with a quarterly increase of approximately $11bn, according to the latest data from HFR.
The growth in hedge fund capital was driven by Q2 performance-based gains and was lead by strategy asset inflows into relative value arbitrage and macro, which were offset by outflows in equity hedge and event-driven strategies.
The HFRI Fund Weighted Composite Index advanced +5.0% in H1 2024, led by directional equity hedge and uncorrelated macro strategies, while the HFRI Asset Weighted Composite Index advanced a similar +5.1% in over the quarter, indicating a modest outperformance of larger funds over small to mid-sized funds for the period. The HFR Cryptocurrency Index returned +25.5% in H1, with decline in Q2 moderating the gain of +45.3% in Q1 2024.
As investors positioned for both interest rates reductions and increased geopolitical uncertainty, credit- and interest rate-sensitive fixed income-based relative value arbitrage strategies led both strategy asset increases and capital flows, with RVA capital increasing by an estimated $30.3bn in Q2, increasing total RV capital to an estimated $1.16tn. Multi-strategy funds again led RVA asset increases in Q2 2024, adding an estimated $20.1bn of capital to end the quarter at $712bn, including $10.3bn of new capital inflows. The HFRI Relative Value Index gained +3.9% in H1 2024 with sub-strategy performance again led by the HFRI RV: Convertible Arbitrage Index, which advanced +5.5%.
Uncorrelated macro strategies extended Q1 inflows with additional capital inflows of $2.6bn bringing the H1 inflows to $4.4bn; total macro capital remained steady at $715bn. The HFRI Macro Index Asset Weighted Index gained +6.1% in H1 2024 though the Index was little changed for 2Q, after posting the largest quarterly gain in the last 20+ years in Q1 2024. Multi-strategy funds also led macro sub-strategy asset inflows for Q2, with these receiving an estimated $5.0bn of new investor capital, while the quantitative, trend-following HFRI Macro: Systematic Diversified Index led macro sub-strategy performance in H1 2024, advancing +7.9%.
Event-driven strategies, which categorically focus on out of favour, deep value equity and credit positions, experienced a small decrease of capital of $7.9bn in Q2 on mixed, volatile performance across certain ED sub-strategies. The decline reduced total ED capital to $1.20tn, a small reduction from the prior quarter record but still representing an estimated increase of $40bn for H1 2024. ED sub-strategy asset decreases were once again concentrated in higher beta shareholder activist and special situations strategies, with these decreasing by $6.7bn and $2.6bn, respectively, in Q2 2024. The HFRI Event-Driven (Asset Weighted) Index gained +4.2% in H1 2024 with sub-strategy gains led by the HFRI ED: Credit Arbitrage Index, which gained +5.9%.
Capital managed by equity hedge strategies declined in Q2 following the Q1 surge, with capital falling by $11bn in over the quarter after rising an estimated $69.2bn in the first three months of the year, bringing total EH capital to level of $1.24tn. EH sub-strategy asset decreases were led by fundamental value funds in Q2, which fell by an estimated $9.2bn for the quarter, bringing total EH: Fundamental Value capital to an estimated $697.6bn. The HFRI Equity Hedge (Total) Index posted a strong gain of +6.1% in H1 2024 after leading all strategy indices for 2023 with a gain of +11.4%. EH sub-strategy gains were led by the HFRI EH: Quantitative Directional Index, which surged +11.7% in H1 2024.
Investors allocated new capital to smaller and new firms in Q2, with these seeing inflows of $3.0bn over the quarter while the industry’s largest firms (managing greater than $5bn) and mid-sized firms managing between $1bn and $5bn experienced estimated net outflows of $5.7bn and $6.7bn, respectively for the quarter. Combining these with Q1 flows, the largest firms experienced inflows of $8.7bn in H1 2024, while mid-sized firms managing between $1bn and $5bn experienced an outflow of $5.0bn, and firms managing less than $1bn experienced an estimated inflow of $3.5bn.
In a statement, Kenneth J Heinz, President of HFR, said: “Total hedge fund capital extended the recent gains with a more moderate gain in H2, though still eclipsing the previous quarter record, increasing total global capital further above the $4.3tn milestone.
“Despite the continuation of the increasing trend, the composition of the growth and investor preferences by strategy shifted from the prior quarter with fixed income, credit, arbitrage, multi-strategy and macro funds leading recent asset increases.
“Even more so than the prior quarter, managers remained focused on unprecedented geopolitical and election risks and opportunities, with these not only including geopolitical/military conflict, but also including ongoing volatile inflation, interest rates and macroeconomic considerations which have dominated the past two years.
“The second quarter results reflect these increasing risks and a more balanced risk sentiment than Q1, with managers navigating these thematic micro-cycles driven by shifting expectations for election results, policy changes, trade impacts, interest rate/inflation expectations and tension between extended equity valuations and the potential for continued growth. Investors and institutions are likely to increase commitments to managers positioned for these historic uncertain conditions and which have successfully navigated these cycles over the past year, with institutional investors seeking both access to these opportunities while protecting portfolios from volatility and risk.”
