Hedge fund assets eclipse record level for eigth consecutive quarter

Bild: HFR Media Reference Guide
Bild: HFR Media Reference Guide

Despite mixed capital flows, hedge fund assets eclipse record level. Equity Hedge inflows offset by Macro outflows as investors increase alternative beta exposure; HFRI Technology, Event-Driven lead 1H18 gains.

20.07.2018, 16:43 Uhr

Redaktion: ans

Hedge fund capital ended 2Q18 at a new record level for the eighth consecutive quarter as investors reversed 1Q strategy flow trends, allocating new capital to Equity Hedge strategies while redeeming from Macro strategies, with Relative Value Arbitrage and Event Driven also showing small outflows.
Total hedge fund industry capital globally increased by USD 20.6 billion to a new record of USD 3.2 trillion, according to the latest HFR Global Hedge Fund Industry Report, released today by HFR, the established global leader in the indexation, analysis and research of the global hedge fund industry.
Reversing the trend of inflows from 1Q18, investors redeemed an estimated USD 3.0 billion in 2Q18, the first quarterly outflow since 1Q17. Firms with large capital flows were nearly evenly distributed between inflows and outflows, with 12 firms experiencing inflows of greater than USD 500 million, with these totaling USD 15.5 billion. Conversely, 11 firms experienced outflows of greater than USD 500 million, with these totaling USD 14.3 billion. The total capital flow to all firms with net inflows in 2Q18 was USD 34 billion, while the total of all firms with net outflows was USD 37 billion.
The HFRI Fund Weighted Composite Index (FWC) gained +0.84 percent in 2Q18, with strong performance in Technology and Event-Driven strategies partially offset by trade and tariff volatility in late 2Q. The 1H18 gain of +0.79 percent for the HFRI FWC topped the performance of most equity markets globally, including the DJIA, as well as European and Asian equities, despite trailing the S&P 500. Indicating stronger relative performance from the largest hedge funds in the industry, the HFRI Asset Weighted Composite Index produced a higher gain of +1.4 percent for 1H18.

Reversing a trend of the prior three quarters, Equity Hedge (EH) strategies experienced an inflow for 2Q18, as investors increased equity beta while reducing exposure to other strategies. EH funds received a net asset inflow of USD 2.4 billion in the second quarter, increasing total EH capital to USD 948 billion, the industry’s largest strategy capital area. By EH sub-strategy, Fundamental Value and Equity Market Neutral received a combined USD 2.7 billion, which was partially offset by an outflow of USD 1.7 billion in EH: Multi-Strategy. The HFRI Equity Hedge (Total) Index gained +0.85 in 2Q18 and +1.2 percent in 1H18, while the HFRI Equity Hedge (Asset Weighted) Index gained +0.64 percent in 2Q18 and +1.75 percent in 1H18. EH sub-strategy performance was led by Healthcare and Technology in 1H18, with the HFRI: EH: Healthcare Index gaining +10.3 percent, leading all sub-strategy indices and topping the gain of the Nasdaq Composite Index, while the HFRI EH: Technology Index gained +7.9 percent.

Macro hedge funds led outflows for 2Q18 as investors rotated out of Macro multi-strategy funds. Macro strategies experienced net outflows of USD 2.8 billion, reducing total Macro capital to USD 594.2 billion. Nearly all of the Macro outflows were concentrated in Multi-Strategy (USD 2.3 billion outflow), while Discretionary Thematic strategies only partially offset these with a net inflow of USD 780 million. The HFRI Macro (Total) Index posted a narrow decline of -0.16 percent in 2Q, bringing the 1H18 performance to a loss of -1.75 percent. Also indicative of the trend of higher relative performance from larger hedge funds, the HFRI Macro (Asset Weighted) Index posted a gain of +0.84 percent for 1H18.

Total assets invested in both Event-Driven (ED) and Relative Value Arbitrage (RVA) strategies increased in 1H18, as performance-based gains offset small outflows at the strategy level. Capital invested in ED rose by nearly USD 10 billion in 2Q to USD 845 billion as performance gains offset net redemptions of USD 1.5 billion; this following USD 4.4 billion of 1Q inflows, bringing the 1H18 inflow to USD 2.9 billion. The HFRI Event-Driven (Total) Index led all strategies in 1H18 with a gain of +2.26 percent; as with other areas, larger ED funds outperformed on a relative basis with the HFRI Event-Driven (Asset Weighted) Index gaining +2.9 percent in 1H18. Similarly, capital invested in RVA strategies increased by USD 1.7 billion to USD 848.2 billion despite a small 2Q outflow of USD 1.1 billion. This outflow was also offset by a larger 1Q inflows of USD 2.3 billion, bringing the total 1H18 inflow into RVA strategies to USD 1.2 billion. The HFRI Relative Value (Total) Index climbed +1.5 percent for 1H18, while the HFRI Relative Value (Asset Weighted) Index posted a higher return of +1.7 percent.

Capital flows by firm size favored mid-sized firms in 2Q18, as firms managing between USD1 billion and USD 5 billion received inflows of USD 1.6 billion. Firms managing less than USD 1 billion in AUM experienced outflows of USD 880 million, while firms managing greater than USD 5 billion experienced a outflow of USD 3.8 billion, much of which was concentrated in a few firms. For 1H18, the largest firms experienced outflows of USD 4.1 billion, mid-sized firms saw inflows of USD 264 million and firms managing less than USD 1 billion saw inflows of USD 1.9 billion, respectively.

"Performance and capital flow trends shifted and evolved in 2Q18, as managers and investors adjusted to the impact of trade tariff financial market volatility and continued strong U.S. economic growth, driving capital flows into Equity Hedge and performance gains across M&A-centric Event Driven strategies, as well as specialized Technology exposures," stated Kenneth J. Heinz, President of HFR. "The combination of trade tariff volatility and strong U.S. corporate earnings has contributed to an expanded opportunity for specialized, long-short investing in these areas, with particular emphasis on technology, manufacturing, media and retail sectors, with these including relative value opportunities in M&A, Activist, Special Situations, Technology and Healthcare. Having reached an eighth consecutive record level of capital through mid-2018, it is likely that these will continue to drive industry growth and performance in the second half of the year and into 2019."

Die Hälfte der Überperformance des Fonds im Dezember stammt aus dem Übergewicht des Bankensektors. (Bild Shutterstock/ArtBackground)

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