Hedge Fund Assets Surge Past $2 Trillion

(July 20, 2011) — Hedge fund net assets have reached a record level of $2.04 trillion, according to data from Hedge Fund Research (HFR).

Meanwhile, the firm found that investors put $30 billion in new money into hedge funds during the second quarter, down slightly from the $32 billion they added in the first quarter. The firm also noted that inflows in the first half of 2011 were in excess of $62 billion.

“Strong second-quarter inflows offset a modest performance-based asset decline,” according to a news release accompanying HFR’s second-quarter performance and flows report. “Financial markets continue to be dominated by uncertainty and volatility and investors are allocating to hedge funds, expecting…this uncertain environment to persist,” Kenneth J. Heinz, president of HFR, said in the news release.

He added that the European sovereign debt crisis, the debate surrounding the US debt ceiling, accelerating Asian inflation, fallout from bank stress tests, and mixed US employment and housing statistics suggest risk is changing faster and more dynamically than ever before.

Furthermore, large funds achieved the strongest results in the second quarter of 2011. Funds with assets over $5 billion attracted about two-thirds of the new inflows and now manage about 62.4% of all industry capital.

The good news for hedge funds follows research from Preqin, which discovered that institutional investors are considering hedge fund investments that could be worth a combined $195 billion over the next 12 months.

“With nearly a third of the investors on the Preqin database having fixed plans for new investments in the next 12 months, and many others investing opportunistically or considering new allocations, the future is looking bright for the industry,” stated Katherine Johnson, the report’s author. “Investors could invest up to $195 billion in the next 12 months, with up to 2,000 funds currently being sought. Funds of hedge funds, pension funds, insurance companies and a large number of other investor groups are looking to increase their hedge fund portfolios in the next year. These investors are seeking a wide range of strategies and structures and therefore it is vital that managers have the best intelligence on these investors if they are to gain a slice of this capital.”