Evening Brief – 04.26.24
Dominance
Global hedge fund assets rose for the sixth consecutive quarter in the first quarter of 2024, reaching a record $4.3 trillion amid strong performance and client inflows, according to the most recent figures from industry data provider HFR.
Total hedge fund assets surged by approximately $190 billion as investors expanded their exposure to directional equity hedge, event-driven, and uncorrelated macro strategies.
The HFRI Fund Weighted Composite Index rose 4.5%, led by directional equity hedging and event-driven strategies, with gains driven by exposure to technology/AI and acceleration in M&A.
Larger funds outperformed, with the HFRI Asset Weighted Composite up 5.12%. The HFR Cryptocurrency Index returned 47.9%, bringing the total trailing six-month return to 106.9%.
Capital managed by equity hedge (EH) strategies increased by approximately $70 billion, reaching a record $1.25 trillion, owing to performance-based gains and $8.5 billion in expected net asset inflows. The HFRI Equity Hedge (Total) Index rose 5.2% after leading all strategy indices in 2023 with a 11.4% gain.
Event-driven (ED) strategies, which focus on out-of-favor, often heavily shorted, deep value equity and credit positions, saw an estimated asset increase of nearly $49 billion, bringing total ED capital to a record $1.21 trillion, including estimated net inflows of $8 billion in the quarter. The HFRI Event-Driven (Total) Index gained 2.5% with higher performance from larger managers as the HFRI Event Driven (Asset Weighted) Index advanced 3.9%.
Uncorrelated macro strategies posted their second-strongest quarterly performance since 2003, with the HFRI Macro (Total) Index surging 6.2%, trailing only the 6.7% gain in the first quarter of 2022. Larger macro funds delivered stronger relative performance, as the HFRI Macro (Total) Index – Asset Weighted jumped 7.15%, led by systematic macro strategies and complemented by fundamental strategies.
Total macro capital increased by an estimated $44.8 billion, inclusive of net asset inflows of $1.7 billion, increasing total macro strategy capital to $715 billion.
Hedge fund capital managed by credit- and interest rate-sensitive fixed income-based relative value arbitrage (RVA) strategies also increased as managers positioned for continued inflationary pressures and elevated interest rates, with RVA capital increasing by an estimated $25.8 billion, raising total RV capital to an estimated $1.13 trillion.
Capital flows were heavily concentrated in the industry’s largest firms, with firms managing greater than $5 billion experiencing an estimated net inflow of $14.4 billion. Mid-sized firms managing between $1 billion and $5 billion experienced a smaller inflow of $1.67 billion, while firms managing less than $1 billion experienced an estimated inflow of $500 million.
“Total hedge fund capital accelerated the year end surge in the first quarter to surpass the $4.3 trillion milestone, as managers focused on unprecedented risks and opportunities dominating allocations into mid-year 2024, with the most significant of these being geopolitical/military conflict, but also including ongoing volatile inflation, interest rates and macroeconomic considerations which have dominated the past two years,” said Kenneth J Heinz, President of HFR.