Total capital invested in the hedge fund industry regained the USD2 trillion milestone to conclude 2011, according to data released today by HFR (Hedge Fund Research). The industry originally eclipsed USD2 trillion in AUM in Q1 2011 and peaked at USD2.04 trillion at mid-year before declining to USD1.97 trillion to end the volatile Q3 11.
Total hedge fund AUM finished the year at USD2.01 trillion, as Q4 2011 performance gains offset a nominal net capital outflow of USD127 million, a figure representing approximately 0.007% of total industry AUM. For the full year 2011, investors allocated USD70 billion of net new capital to hedge funds, a volatile performance year in which the HFRI Fund Weighted Composite Index declined by 5.0 per cent, only the 3rd calendar year decline since 1990.
Investors exhibited a clear preference for Macro and Relative Value Arbitrage strategies in both the fourth quarter and the full year, while equity strategies experienced net withdrawals for 4Q. Discretionary and quantitative Macro hedge funds, which actively position across liquid currency, commodity, fixed income and equity markets experienced net inflows of USD7.9 billion for Q4 and USD27.9 billion for 2011. Relative Value Arbitrage (RVA) strategies, which are primarily fixed income-based, attracted a net inflow of USD5.9 billion in 4Q and USD35.9 billion for 2011; RVA was the only main strategy to post a performance gain for 2011, with the HFRI Relative Value Index gaining 0.51 per cent for the year. Following the difficult 3Q11, Equity Hedge and Event Driven experienced net outflows in Q4 11 of USD8.6 and USD5.3 billion, respectively, reducing full year inflows to USD2.2 billion in Equity Hedge and USD4.6 billion in Event Driven.
Nearly 60 per cent of all hedge funds experienced outflows for the quarter, while just over 40 per cent attracted inflows. For the full year 2011, investors allocated USD50.7 billion of net new capital to firms with greater than USD5 billion in AUM, while firms with less than USD5 billion experienced a combined net inflow of USD20 billion. Concluding a difficult year for Funds of Hedge Funds (FOF), investors withdrew USD7.2 billion in Q4 11, bringing FOF total capital to USD629 billion.
“Capital flows in both Q4 and 2011 have followed a consistent theme of reducing directional equity market beta while increasing exposure across currency, commodity and fixed income strategies, as investors position for continuing macro volatility and spread convergence in 2012,” says Kenneth J Heinz (pictured), President of HFR. “The complexity and breadth of the European debt and currency crisis contributed to a challenging environment for hedge funds in 2011 and, as a result, investors are tactically positioning exposures to provide positive portfolio optionality and to monetize opportunities created by fluid developments in this ongoing crisis.”
