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HFRI macro index up 14.2% in H1

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Led by gains in Macro, CTA, Risk Mitigation and Commodity strategies, the HFRI Macro (Total) Index gained +14.2 per cent in the H1 2022, topping the decline of the S&P 500 by 3300 bps and the Nasdaq Composite Index by nearly 4400 bps as US equity markets experienced the worst H1 of a calendar year in over 50 years.

Led by gains in Macro, CTA, Risk Mitigation and Commodity strategies, the HFRI Macro (Total) Index gained +14.2 per cent in the H1 2022, topping the decline of the S&P 500 by 3300 bps and the Nasdaq Composite Index by nearly 4400 bps as US equity markets experienced the worst H1 of a calendar year in over 50 years.

Negatively correlated Macro gains offset weakness in directional and higher beta strategies, bringing the performance of the HFRI 500 Fund Weighted Composite Index to a decline of -4.1% in H1 2022, with both Macro and the overall Composite exhibiting the highest outperformance versus equity market declines in a first half of a year since inception (1990). Larger, more established hedge funds outperformed smaller hedge funds in both June and H1 2022, as the HFRI Asset Weighted Composite Index (which has the same constituents as the equal-weighted version) fell only -0.08% for the month and has gained +2.35% through mid-year 2022.

As a result of the volatility and positioning for generational inflation and increased likelihood of an economic recession, institutional investors withdrew an estimated $27.5 billion from hedge funds in 2Q 2022, the highest quarterly outflow since 1Q 2020, as reported today by HFR in the latest release of the HFR Global Hedge Fund Industry Report. Total global hedge fund industry capital fell to $3.82 trillion, as managers navigated extreme volatility with leadership from uncorrelated Macro strategies, including Fundamental Commodity and Discretionary funds, as well as Quantitative, Trend-Following CTA strategies which posted record gains.

The investable HFRI 500 Fund Weighted Composite Index posted a decline of -4.1% for H1 2022, declining -2.7% in June, with 1H gains in Macro, Energy, and Market Neutral strategies offset by declines in directional and higher beta strategies; the HFRI Fund Weighted Composite Index® (FWC) declined -5.8% in H1 2022.

Strategy asset increases were led by uncorrelated Macro strategies, which grew by $25.9 billion in 2Q22 on strong performance-based gains to surpass the $700 billion milestone, ending the quarter at an estimated $704 billion. Macro sub-strategy inflows and asset increases were led by quantitative, trend-following CTA strategies, as investors allocated $266 million of net new capital to CTA’s, which produced performance-based gains of $21.7 billion to end 2Q22 with an estimated $359 billion AUM. The investable HFRI 500 Macro Index surged +13.2% in H1 2022, driven by the HFRI 500 FOF (S) Risk Mitigation Index, which gained +6.0%, the HFRI 500 Macro: Systematic Diversified Index, which soared +17.9%, and the HFRI 500 Macro: Commodity Index, which surged a record +37.0% in H1 2022, leading all strategies and sub-strategies.

With interest rates rising in H1 2022 and expectations for continued increases, capital managed by credit- and interest rate-sensitive fixed income-based Relative Value Arbitrage (RVA) strategies experienced an estimated net outflow of $3.5 billion in 2Q22, ending the quarter with $1.024 trillion. RVA managers again navigated not only sharp increases in interest rates but also a yield curve inversion, the highest inflation in 40 years, a sharp increase in sovereign default risk, and expectations for additional rate increases in 2022. Despite outflows in other RVA sub-strategies, Multi-Strategy funds led RVA sub-strategies with estimated net asset inflows of $2.7 billion, keeping RV: MS capital steady at $616.8 billion. The investable HFRI 500 Relative Value Index posted a narrow decline of -0.4% in H1 2022, with losses in directional strategies offset by the HFRI 500 RV: Multi-Strategy Index, which gained +5.4%, and the HFRI 500 RV: Volatility Index, which surged +11.2%.

Event-Driven (ED) strategies, which categorically focus on out of favor, often heavily-shorted, deep value equity and credit positions, experienced an estimated $2.6 billion of net asset outflows in 2Q, partially offsetting the 1Q22 net inflow of $12.8 billion to ED strategies, as total ED capital fell to $1.01 trillion on performance-based declines. ED sub-strategy outflows were almost entirely concentrated in ED: Special Situations, which experienced $2.6 billion in outflows. These were only partially offset by inflows of $741 million and $246 million, respectively, into Activist and Distressed sub-strategies. The investable HFRI 500 Event-Driven Index declined -8.55% in H1 2022, while the HFRI Event-Driven (Total) Index fell -7.65%.

Total capital invested in Equity Hedge (EH) strategies declined in 2Q22, as performance-based losses, combined with an estimated net asset outflow of $18.5 billion, decreased total EH capital to $1.08 trillion. EH sub-strategy outflows were led by Fundamental Value, which experienced an estimated $14.7 billion of net redemptions from the sub-strategy. The investable HFRI 500 Equity Hedge Index declined by -8.34% in 2Q, lowering its 1H return to -12.65%, while the HFRI Equity Hedge (Total) Index fell -7.98% in 2Q and -12.0% in H1 2022. Concurrent with surging energy and commodity prices, as well as accelerating inflation, EH sub-strategy performance was led by the HFRI 500 EH: Energy/Basic Materials Index, which surged +9.2% in H1 2022, though these gains were offset by losses in the HFRI 500 EH: Healthcare Index (-14.6%) and the HFRI 500 EH: Fundamental Growth Index (-19.6%).

The industry’s largest firms, those managing greater than $5 billion, led investor outflows in Q2, with these experiencing an estimated net asset outflow of $19.6 billion for the quarter. Firms managing between $1 billion and $5 billion saw an estimated net outflow of $7.2 billion, while investors redeemed approximately $800 million from firms managing less than $1 billion over the quarter.

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