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Hedge fund industry extends record asset level with Q2 inflows

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Investors continued to allocate new capital to hedge funds through and despite the volatile performance environment in 2Q11, as new allocations to the hedge fund industry totalled nearly USD30 billion in 2Q11, according to data released today by HFR in the latest edition of Global Hedge Fund Industry Report: 2Q11.


Inclusive of the USD32 billion in inflows from the previous quarter, inflows in H1 2011 exceeded USD62 billion, the strongest half-year total since 2H07, when the industry saw USD75 billion in inflows.  Strong 2Q inflows offset a modest performance-based asset decline, and extended the record level of capital invested in the global hedge fund industry to USD2.04 trillion.

Investors exhibited strong preference for Macro and Relative Value strategies in Q2, with these receiving over USD20 billion of the new inflow. In terms of performance, Macro and Relative Value were at opposing ends of spectrum in 2Q, with the HFRI Macro Index posting a decline of 1.7 per cent, while the HFRI Relative Value Index gained 0.76 per cent.

Investors also indicated a clear preference for systematic, quantitative strategies with those receiving USD10 billion in new capital across various sub-strategies, including Macro: Systematic Diversified. Equity Hedge strategies experienced inflows of only USD1.7 billion in new capital in 2Q, bringing the YTD inflow total for Equity Hedge to USD8.1 billion, the lowest of the four main strategy groups. After experiencing an inflow of USD4.8 billion in 1Q, Fund of Funds saw a net withdrawal of USD2.1 billion in 2Q; the HFRI Fund of Funds Index declined by 1.2 per cent for the quarter.

After several quarters of moderating concentration, 2Q saw a reversal of this trend with the industry’s largest funds experienced a proportional increase in the new capital flows. Approximately two-thirds of the 2Q inflow went to firms with greater than USD5 Billion in firm AUM; these funds manage approximately 62.4 per cent of all industry capital. The overall percentage of funds which experienced inflows fell to 61 per cent in 2Q from 71 per cent in the prior quarter.

“Financial markets continue to be dominated by uncertainty and volatility, and investors are allocating to hedge funds, expecting and anticipating this uncertain environment to persist. The many catalysts in this environment, including the European sovereign debt crisis, the debate surrounding the US debt ceiling, accelerating Asian inflation, fallout from bank stress tests, and mixed US employment and housing statistics, suggest risk is changing faster and more dynamically than ever before,” said Kenneth J Heinz (pictured), President of HFR. “Hedge fund investors are now more sophisticated than ever and are allocating to areas such as Macro, Relative Value and various quantitative strategies in anticipation of opportunities to be created by transition, volatility and risk.”

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