Hedge funds closed the performance gap with global equities in July 2024, according to Preqin with the data provider’s All Hedge Fund Index up by 1.61% over the month, just 17 basis points behind the MSCI World Index, which posted a 1.78% gain.
This marks the narrowest gap between the two indices since July 2019.
Charles McGrath, lead author of Preqin’s latest Hedge Fund Monthly Briefing, attributes the unusually close performance between hedge funds and global equities to the outperformance of the bond market and small-cap equities. Both worked in favour of hedge funds as they capitalised on the growing prospects of global central bank interest rate cuts.
However, in terms of performance, July was a polarising month for hedge funds. While bond and small-cap equities performed well, falling metal prices adversely affected commodity-driven funds, excluding energy. This decline tempered the gains of hedge funds that had previously thrived on strong commodity markets. Additionally, the previously robust growth of tech stocks, which had driven hedge fund returns earlier in the year, stalled in July, further contributing to the mixed performance.
According to the report, the second quarter of 2024 marked the seventh consecutive quarter of global hedge fund asset growth, with assets under management (AUM) reaching an estimated $4.7tn. However, the $5.3bn (+0.11%) increase in AUM during Q2 was significantly lower than the $186bn added in Q1 2024.
Niche hedge fund strategies performed exceptionally well in July, collectively gaining 3.36%. Crypto-linked and insurance-linked strategies were particularly strong, outperforming the broader hedge fund sector and demonstrating resilience in a volatile market.
Despite the growth in AUM though, the hedge fund industry continued to experience net redemptions, with Q2 2024 marking the seventh quarter out of the last 12 with net cash outflows, totalling $9bn. Equity strategies saw significant net redemptions, losing $5.8bn over the quarter, following $6.7bn in outflows in Q1. Niche strategies though, bucked this trend, continuing to attract assets despite the broader outflows.
