Hedge fund AuM hits record $2.13 trillion

20 Apr, 2012

The total capital invested in hedge funds reached a record $2.13 trillion surpassing its 2011 peak of $2.04 trillion, according to data from Hedge Fund Research in Chicago.

Investors allocated more than $16 billion to alternatives during the first quarter of 2012. “The equity market rally at the beginning of the year has certainly boosted investor confidence and sentiment for hedge funds,” said Kenneth Heinz, president of Hedge Fund Research.

Hedge funds have had a solid year with the HFRI Fund Weighted Composite Index up almost 5%. The majority of net new capital for the quarter went into relative value strategies ($12.4 billion) and macro ($7.8 billion). Relative value recently usurped event driven as the second largest hedge fund strategy by assets, currently standing at $546 billion. Relative value and macro have increased their AuM by 60% and 66% respectively since the crisis. Relative value has had a strong 2012 posting gains of 4.34% although macro has proven to be one of the weaker performers with marginal gains of 0.99%.

Approximately $2.9 billion was redeemed from equity hedge strategies, while event driven saw $940 million in outflows. While these strategies struggled last year, they have posted impressive gains in 2012 with equity hedge being the best performing strategy with gains exceeding 7%. “The outflows in equity hedge are more indicative of investors allocating capital strategically rather than taking an opinion on a particular strategy,” said Heinz.

Investors also expressed a preference for the biggest managers with $18.3 billion in new capital allocated to firms with more than $5 billion Assets under Management (AuM) in the first quarter. Firms with less than $5 billion experienced net outflows of almost $2 billion. “These figures are indicative that investors have little risk appetite and are more comfortable allocating to tried and tested managers. However, as the rally continues, I anticipate investors will go after smaller managers as they increase their risk tolerance,” commented Heinz.

Funds of hedge funds (FoHFs) continued to suffer outflows with $5 billion pulled out in the first quarter. While only 13% of FoHFs saw net asset inflows during the quarter, as a result of performance gains, assets invested in FoHFs increased by $14 billion to end the quarter at $644 billion. “FoHFs are still a way away from their peak assets of 2007 although we are seeing a plateau of redemptions,” said Heinz.