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Hedge fund industry surpasses USD2trn milestone

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Total capital invested in the global hedge fund industry exceeded USD2 trillion for the first time in its history, according to data released by Hedge Fund Research, Inc. (HFR).


Total industry assets rose to USD2.02 trillion, an increase of USD102 billion in 1Q11, surpassing the previous record of USD1.93 trillion, set in 2Q08. The current asset level reflects an increase of over 50 per cent from the Financial Crisis low of USD1.33 Trillion in 1Q09. Investors allocated USD32 billion in net new capital in 1Q, the largest quarterly net inflow since 3Q07.

All strategy areas experienced inflows for the quarter, with the distribution of flows suggesting that allocators hold constructive yet dispersed views of the best strategic opportunities across the industry. Relative Value Arbitrage and Macro strategies posted the largest investor inflows, with each capturing approximately USD12 billion. Relative Value Arbitrage strategies, encompassing exposure to fixed income, convertible securities and credit markets, have posted monthly performance gains in 26 of 27 months since December 2008. Event Driven strategies experienced the smallest capital inflows, attracting USD2.2 billion, despite producing the strongest area of industry performance in both 2010 and 1Q11, with gains of +11.9 per cent and +3.54 per cent. Investors allocated USD6.4 billion to Equity Hedge strategies in 1Q11, more than double the USD2.6 billion of inflow from FY 2010.

Investors allocated new capital to funds of all asset tiers, reflecting a moderation of the capital concentration in the industry’s largest firms. Though firms with less than USD250 million manage less than 4 per cent of total industry capital, these received nearly 7 per cent of 1Q inflows. Firms with capital in excess of USD5 billion received just over half of the 1Q inflow, slightly moderating the 63 per cent of total industry capital managed by these firms. Fund of Funds experienced an inflow of nearly USD4.8 billion, the largest quarterly inflow since 2Q08.

Across the industry, nearly 72 per cent of all hedge funds experienced capital inflows for the quarter, while nearly two-thirds of all funds have reached their high watermarks in the trailing 12 months.

“The growth of the industry to surpass significant threshold levels of both investor capital and fund performance validates that the hedge fund industry has completed its recovery from the financial crisis,” says Kenneth J Heinz (pictured), President of Hedge Fund Research (HFR). “The strategic and structural qualities of investor accessibility and transparency, which have defined the evolution of the industry in past two years, will serve as the primary catalysts for growth to surpass future milestones.”

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