(April 20, 2012) — Hedge funds broke their total asset record at the end of March, after the best first quarter performance since the start of the financial crisis, with larger firms picking up most new money, research has shown.
Assets hit $2.13 trillion at the end of the first quarter, up from the previous high of $2.04 trillion in mid-June 2011, data monitor Hedge Fund Review (HFR) said.
Along with a net $16 billion of new capital allocated by investors, performance in the sector was the best in five years. The HFRI Fund Weighted Composite Index gained almost 5% in these first three months.
Kenneth Heinz, President of HFR, said: “The record level of assets and the shifting distribution of these are indicative of powerful trends shaping the hedge fund industry in 2012. Sophisticated institutional investors are increasingly allocating to hedge funds as a powerful strategic portfolio complement to existing traditional holdings, utilizing transparency to balance equity market beta, access uncorrelated returns, and enhance their ability to exceed target return requirements.”
Larger hedge funds were the winners in the first quarter, with $18.3 billion allocated to firms managing over $5 billion. Further down the scale firms managing less than $5 billion saw almost a combined $2 billion in outflows, HFR said.
Fund of hedge funds continued to be discarded by investors. The first three months of the year represented the fourth consecutive quarter of outflows for the group. A net $5 billion had been pulled by investors by the end of March and only 13% of fund of hedge funds experienced net inflows. However, overall, due to positive performance, the group’s assets were up by $14 billion to $644 billion.
The best performing strategies in the first three months were short-bias funds and funds regionally focused on Russia and emerging Europe, HFR said.
However, investors took a less specific view and allocated the most new capital to relative value and macro strategies, at the expense of event-driven and equity hedge strategies.
Heinz said: “Investors responded favorably to the risk shifting which occurred across financial markets in the first quarter, continuing the trend of allocating to arbitrage and Macro strategies which exhibit lower directional beta to equity markets.”