INVESTMENT: Hedge fund capital rises again with $3bn in new inflows

As published on: hedgeweek.com, Monday 24 July, 2023.

Total hedge fund assets increased for the third consecutive quarter in Q2, as investors allocated new capital to equity hedge and event driven strategies, according to Hedge Fund Research.

Investors allocated an estimated $3.6 billion in new capital to the hedge fund industry in the second quarter, a second consecutive quarter of net asset inflows, as hedge funds extended year-to-date gains with total industry assets reaching an estimated $3.95 trillion, a quarterly increase of over $60 billion, HFR said.

Equity hedge funds led all main strategies in both capital inflows and performance-based asset gains in Q2, driven by Fundamental Value and Technology. Total EH capital increased by an estimated $29.4 billion to end 2Q23 at $1.14 trillion, as strong performance-based gains were complimented by an estimated $2.8 billion of new investor capital in the quarter.

Event-Driven strategies, which categorically focus on out of favor, often heavily shorted, deep value equity and credit positions, experienced an estimated asset increase of $17.4 billion in Q2, raising total ED capital to $1.07 trillion. Total Macro capital recovered from the Q1 asset decline to gain an estimated $14.1 billion in Q2, bringing total Macro strategy capital to $677.4 billion.

Hedge fund capital managed by credit- and interest rate-sensitive fixed income-based Relative Value Arbitrage (RVA) strategies increased by an estimated $8.7 billion in Q2, raising total RV capital to $1.06 trillion.

Inflows for Q2 were concentrated in the industry’s largest firms, as those managing greater than $5 billion experienced an estimated net asset inflow of $6.5 billion. Firms managing between $1 billion and $5 billion saw a small estimated net outflow of $366 million for the quarter, while firms managing less than $1 billion experienced estimated outflows of $2.56 billion.

“Investors allocated new capital to hedge funds in Q2, extending gains from Q1 despite a total reversal of investor risk tolerance from the risk off dominated environment that concluded Q1 to a strong risk on sentiment, driving performance and attracting investor capital to end the first half of 2023,” said Kenneth J. Heinz, President of HFR.

“Hedge funds have navigated this powerful shift in risk tolerance and sentiment, including not only an AI-led surge in Technology exposures, but also a sharp reversal in banking risk and a recent decline in inflation data, presenting a significantly different market paradigm and opportunity set across asset classes than had dominated the prior 18 months.”



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