Biggest hedge funds grow fastest as investment share of smaller funds shrink
Total capital invested in the global hedge fund industry grew in the first quarter of this year at its fastest pace since 2010, with the bigger, more established funds receiving an increasing share of funds allocated by institutional investors, according to industry analysis and consulting firm HFR.
Total assets under management rose $122 bn in the first quarter, the biggest increase since the fourth quarter of 2010, to $2.735 tn, an all-time record, HFR says in a press release. Investors allocated a net $15.2 bn in new capital in the quarter.
Overall, $556 bn in new capital was invested in hedge funds, compared with outflows of $40.4 bn. While most hedge funds received net inflows in the quarter, the biggest, most established funds received a greater share of the inflows than in the previous quarter, while the smallest of the funds say their proportion of the inflows declined.
Fifty-seven percent of all hedge funds experienced net inflows in the quarter, with a greater share of the overall inflow, or a total of $10 bn, going to firms with more than $5 bn in assets under management. The rest of the net investment went to smaller firms, with $1.5 bn reaching the smallest funds (those with less than $500 mn in assets under management).
‘Investors and asset managers were confronted with a complex environment dominated by the global asset pricing implications of aggressive quantitative easing and stimulus efforts, new European banking crisis developments, high-profile shareholder activist campaigns and sharp reversals in currency markets, all preceding a dramatic commodity correction that began shortly after the close of the quarter,’ says Kenneth Heinz, president of HFR. ‘As the strong risk-on environment has faded in early Q2 2013, we expect a greater institutional emphasis on alternatives to continue and expand into mid-year 2013.’
Growth in the hedge fund industry came as stocks soared through most of the quarter, with 45 percent of all hedge funds reaching their highest levels ever, according to HFR. The rally in equities and the improved US economic outlook drove much of the gains, it adds.
The benchmark HFRI Fund Weighted Composite Index also saw a rise of 3.9 percent to an all-time high of 11,482, HFR adds. Funds focused on equities posted gains of an average 5.3 percent in the first quarter, while those focused on equities in the energy and basic materials sector posted a quarterly decline of 0.2 percent in the atmosphere of increased risk tolerance.
