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Hedge fund assets hit record $4.3tn, says HFR

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Global hedge fund industry assets increased for the sixth successive quarter in Q1 2024, hitting a record $4.3tn on the back of strong performance and investor inflows, according to the latest figures from industry data provider HFR.

Total hedge fund assets rose by nearly $190bn over the quarter as investors increased exposure to directional equity hedge, event-driven and uncorrelated macro strategies.

The HFRI Fund Weighted Composite Index advanced 4.5% in Q1 2024, led by directional equity hedge and event-driven strategies, with gains driven by exposure to technology/AI, as well as acceleration in M&A. Larger funds produced higher relative performance, with the HFRI Asset Weighted Composite gaining 5.12% for the quarter. The HFR Cryptocurrency Index returned 47.9% in Q1, bringing the trailing six-month return to 106.9%.

Capital managed by equity hedge (EH) strategies surged by nearly $70bn to begin 2024, rising to a record level of $1.25tn, driven by performance-based gains, as well as estimated net asset inflows of $8.5bn. EH sub-strategy asset increases were led by Fundamental Value funds in Q1, which increased by an estimated $37bn for the quarter, bringing total EH: Fundamental Value capital to an estimated $706.8bn. The HFRI Equity Hedge (Total) Index posted a strong gain 5.2 in Q1 after leading all strategy indices for 2023 with a gain of 11.4%.

Event-driven (ED) strategies, which categorically focus on out of favour, often heavily shorted, deep value equity and credit positions, experienced an estimated asset increase of nearly $49bn in Q1, raising total ED capital to a record $1.21tn, inclusive of estimated net investor inflows of $8bn for the quarter. ED sub-strategy asset increases were once again concentrated in higher beta special situations and shareholder activist strategies, with these increasing by $17bn and $13.4bn respectively in Q1 2024. The HFRI Event-Driven (Total) Index gained 2.5% in Q1 2024 with higher performance from larger managers as the HFRI Event Driven (Asset Weighted) Index advanced 3.9%, led by the HFRI ED: Activist Index, which surged 6.1%.

Uncorrelated macro strategies posted their second-strongest quarterly performance since 2003, with the HFRI Macro (Total) Index surging 6.2% in Q1 2024, trailing only the 6.7% gain in Q1 2022 over the last 20-plus years. Larger macro funds delivered stronger relative performance in Q1, as the HFRI Macro (Total) Index – Asset Weighted jumped 7.15%, led by systematic macro strategies and complemented by fundamental strategies. Total macro capital increased by an estimated $44.8bn in Q1, inclusive of net asset inflows of $1.7bn for the quarter, increasing total macro strategy capital to $715bn. Macro sub-strategy asset increases were led by quantitative, trend-following systematic diversified CTA strategies, which added an estimated $28.1bn in Q1. Macro sub-strategy performance was led by the fundamental HFRI Macro: Systematic Diversified Index, which surged 9.4% in Q1, while the HFRI Trend Following Index jumped 8.1% for the quarter.

Hedge fund capital managed by credit- and interest rate-sensitive fixed income-based relative value arbitrage (RVA) strategies also increased in Q1 as managers positioned for continued inflationary pressures and elevated interest rates, with RVA capital increasing by an estimated $25.8bn in Q1, raising total RV capital to an estimated $1.13tn. Multi-strategy funds led RVA asset increases in Q1 2024, adding an estimated $17.2bn of capital to end the quarter at $692bn. The HFRI Relative Value (Total) Index gained 2.5% in Q1 2024 with sub-strategy performance led by the HFRI RV: Convertible Arbitrage Index, which advanced 4.0%.

Investor capital inflows in Q1 2024 were heavily concentrated in the industry’s largest firms, with firms managing greater than $5bn experiencing an estimated net inflow of $14.4bn. Mid-sized firms managing between $1 and $5bn experienced a smaller inflow of $1.67bn, while firms managing less than $1bn experienced an estimated inflow of $ 0.5bn.

In a press statement, Kenneth J Heinz, President of HFR, said: “Total hedge fund capital accelerated the year end surge in the first quarter to surpass the $4.3tn milestone, as managers focused on unprecedented risks and opportunities dominating allocations into mid-year 2024, with the most significant of these being geopolitical/military conflict, but also including ongoing volatile inflation, interest rates and macroeconomic considerations which have dominated the past two years.

“At the same time, managers are also accessing exciting, volatile, and rich opportunity sets in AI, technology, cryptocurrency and M&A, positioning portfolios to access these.”

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