Assets invested in the hedge fund industry increased by USD100bn in the second quarter of 2009, ending at USD1.43trn, according to figures from Hedge Fund Research.
Assets invested in the hedge fund industry increased by USD100bn in the second quarter of 2009, ending at USD1.43trn, according to figures from Hedge Fund Research.
This marks the first quarterly increase in assets since Q2 2008, when total industry capital peaked at USD1.93trn.
The recent asset growth was fueled by performance gains during the quarter, as the HFRI Fund Weighted Composite Index returned 9.13 per cent, the industry’s best quarterly gain since the fourth quarter of 1999. The strong performance was led by strategies focusing on emerging markets, convertible arbitrage and energy/basic materials. These three areas were among the weakest performers in 2008, underscoring the dramatic shift in market dynamics that has taken place thus far this year.
Even as performance improved, investors continued to withdraw capital from the industry, albeit at a much slower pace. Investors redeemed USD42.8bn from hedge funds in the second quarter, approximately 60 per cent less than the USD103bn that was redeemed in Q1 2009 and an even more significant drop from the USD152bn that was withdrawn in Q4 2008.
Funds of hedge funds continued to experience a higher percentage of capital redemptions than single-manager strategies, as investors withdrew USD33bn from funds of hedge funds in the second quarter. Total capital invested in hedge funds via funds of hedge funds currently stands at USD530bn, 37 per cent of the industry’s total capital and well below the USD825bn which were invested through funds of funds at their peak level in mid-2008.
The report also shows that the number of hedge funds, including both single-manager and funds of funds, remained approximately flat during the quarter at just over 8,900.
Despite recent performance gains, the industry remains below the high-watermark set in October 2007; the HFRI Fund Weighted Composite Index still requires an additional gain of 14.7 percent to reach its previous peak.
The equally-weighted HFRI Fund Weighted Composite Index posted a gain of 9.46 per cent through June, while an asset-weighted version of that index returned 9.06 per cent. This indicates that, on average, funds with a lower asset base have outperformed larger funds in the first half of 2009. This is a reversal from 2008, when the asset-weighted version of HFRI posted a decline of 14.96 per cent, versus a 19.03 per cent decline in the equally-weighted version.
‘Reflecting the diverse drivers of hedge fund industry performance, recent gains have occurred in an environment in which developed equity markets have been essentially flat,’ says Kenneth J. Heinz, president of Hedge Fund Research. ‘Improved liquidity in credit markets contributed to narrowing some of the pricing dislocations that were created near the end of 2008, and the combination of improved credit markets, gains in emerging markets, and decreased risk aversion have driven broad-based gains in 2009.’
