Hedge fund assets advance on performance gains, net inflows
19 October 2012
By Asia Asset Management
Total hedge fund assets surged on strong Q3 performances and a third consecutive quarter of net inflows, for the best quarterly advance year-to-date (YTD), according to data released by Hedge Fund Research (HFR). Hedge fund capital increased by 3.6% to US$2.19 trillion, as of the end of 3Q12, an increase of $80 billion during the quarter and $183 billion year-to-date. Investors allocated $10.6 billion of net new capital to hedge funds in Q3 2012, bringing YTD net inflows to $31 billion. Despite these figures, if inflows continue at their current pace through to the end of the year, 2012 will still have the lowest total inflow since 2009, when investors withdrew $131 billion from the hedge fund industry. The HFRI Fund Weighted Composite Index gained 3% in Q3, creating a performance-based asset increase of approximately $70 billion.
Investors continued to exhibit a strong preference for fixed income-based relative value arbitrage (RVA) strategies, while reversing prior quarter outflows to macro/CTA strategies. The HFRI Relative Value Index has gained 7.9% YTD, through 3Q, leading all hedge fund strategies. Meanwhile, the HFRI Relative Value: Asset Backed Index has gained 13% YTD. Investors allocated $12.6 billion of new capital to RVA strategies bringing RVA inflows to $35 billion YTD and total capital in RVA to $586 billion, which is essentially tied with equity hedge for the largest strategy area by assets. Macro hedge funds saw an inflow of $4.4 billion. Macro strategies have posted a narrow gain of 0.7% YTD, while commodity trading advisors (CTA) strategies are essentially flat for the year, despite a gain of 0.9% in Q3.
Continuing trends from the previous three quarters, investors withdrew capital from both equity hedge and event driven strategies in Q3, with these experiencing $5.2 and $1.3 billion in net redemptions, respectively. The HFRI Equity Hedge and Event Driven Indices have gained 5.5% and 5.0%, respectively, YTD through Q3, with total capital invested in these reaching $586 billion and $536 billion, respectively.
“Risk-off sentiment dominated financial market and hedge fund performance in Q3, with investors responding to continued global stimulus efforts and the evolution of risk in the European debt and banking crisis, with steady allocations driving assets to a record level,” stated Kenneth J Heinz, president of HFR. “Shifting and uncertain macro and structural risk dynamics have motivated investors to allocate to hedge funds not only to mitigate excessive equity market volatility, but as a tactical mechanism to enhance portfolio fixed income yields and capture powerful trends across currency and commodity markets. Hedge fund investors are likely to benefit from the continuation and development of these trends in coming quarters.”
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