Hedge funds wrapped up last year with the best investment inflows since 2015’s second quarter, as capital surged by $59 billion to a record $3.21 trillion in 2017 amid solid returns, according to the HFR Global Hedge Fund Industry Report.
Much of the new money came in the last part of the year. In Q4 2017, investors plugged in $6.9 billion, bringing the annual inflow total to $9.8 billion. Last year was the first without a monthly performance decline since 2003, and the HFRI Fund Weighted Composite Index, which tracks hedge fund returns, advanced by 8.7%, its strongest yearly return since 2013.
Of course, that pales compared to the Standard & Poor 500, which last year had a total return (growth plus dividends) of 21.8%. Still, the fresh capital inflows suggest an optimism about hedge funds, whose aim is to protect against downside risk and provide investors with exposure different than the overall market.
The largest investments went to event-driven funds. These seek to gain from occurrences like mergers, which were on the upswing in late 2017 and should keep going in the new year. This category of fund attracted $6.9 billion in new capital for the fourth quarter, bringing its assets under management to $831.6 billion.
The next biggest investment magnet was the multi-strategy category, an ambidextrous approach that allows funds to range from convertible bond arbitrage to equity long-short. Multi-strategy attracted $4.9 billion in the final quarter and $10 billion for all of 2017.
Flows favored the smallest and the biggest hedge funds, not those in the middle. Funds with less than $1 billion in assets received $7.4 billion in new capital, while those with over $5 billion bagged $6.3 billion. The middle tier, between $1 billion and $5 billion, had a net withdrawal of $3.9 billion.
Tags: Event-Driven Hedge Funds, Hedge Funds, HFR Global Hedge Fund Industry Report, Multi-Strategy Hedge Funds