Total capital invested in the global hedge fund industry exceeded $2 trillion for the first time in its history on the back gains made by funds with regional exposure to Russia and the Middle East, according to data released on Tuesday by Hedge Fund Research Inc, or HFR, a leading provider of hedge fund industry data.
The data released by the Chicago-based leader in the alternative investment industry, said total industry assets rose to $2.02 trillion, an increase of $102 billion in the first quarter 2011, surpassing the previous record of $1.93 trillion, set in the second quarter of 2008. The current asset level reflects an increase of over 50 per cent from the financial crisis low of $1.33 trillion in first quarter 2009. Investors allocated $32 billion in net new capital in first quarter, the largest quarterly net inflow since third quarter 2007.
According to HFR’s report early this year, emerging markets hedge funds posted industry-leading gains in 2010, led by funds with regional exposure to Russia and the Middle East. As a direct result of these gains, assets invested in emerging market hedge funds increased by nearly $10 billion in the fourth quarter to end the year at more than $114 billion. Middle East-focused funds posted the strongest gains among all emerging market regions, with the HFRX MENA Index gaining 22.67 per cent for 2010.
“The growth of the industry to surpass significant threshold levels of both investor capital and fund performance validates that the hedge fund industry has completed its recovery from the financial crisis,” HFR President Kenneth J. Heinz said.
“The strategic and structural qualities of investor accessibility and transparency, which have defined the evolution of the industry in past two years, will serve as the primary catalysts for growth to surpass future milestones,” he added.
All strategy areas experienced inflows for the quarter, with the distribution of flows suggesting that allocators hold constructive yet dispersed views of the best strategic opportunities across the industry.
Relative value arbitrage and macro strategies posted the largest investor inflows, with each capturing approximately $12 billion.
Relative value arbitrage strategies, encompassing exposure to fixed income, convertible securities and credit markets, have posted monthly performance gains in 26 of 27 months since December 2008. Event driven strategies experienced the smallest capital inflows, attracting $2.2 billion, despite producing the strongest area of industry performance in both 2010 and this year first quarter, with gains of 11.9 per cent and 3.54 per cent.
Investors allocated $6.4 billion to equity hedge strategies in the first quarter, more than double the $2.6 billion of inflow from 2010.
Investors allocated new capital to funds of all asset tiers, reflecting a moderation of the capital concentration in the industry’s largest firms.
Across the industry, nearly 72 per cent of all hedge funds experienced capital inflows for the first quarter, while nearly two-thirds of all funds have reached their high watermarks in the trailing 12 months.