Total capital invested in the global hedge fund industry surged to a fifth consecutive quarterly record in 3Q13, driven by the highest inflows in over 2 years and eclipsing another milestone of industry expansion, according to HFR Global Hedge Fund Industry Report.
Hedge fund capital rose to US$2.51 trillion in 3Q13, an increase of US$94 billion over the prior quarter, with growth distributed across all strategy areas.
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Investors allocated over US$23 billion of net new capital to hedge funds in 3Q13, the highest quarterly inflows since 2Q11. The HFRI Fund Weighted Composite Index gained +2.2% in 3Q13 and has gained +5.5% YTD through September, with performance leadership from Equity Hedge and Event Driven strategies.
Third quarter inflows were led by Equity Hedge (EH) strategies, as investors allocated over US$10.6 billion to EH funds in the quarter, the highest quarterly inflow for the strategy since prior to the Financial Crisis.
The inflow increased total capital invested in EH strategies to US$686 billion, returning EH to the largest concentration of hedge fund capital two quarters after it had been surpassed by fixed income-based Relative Value Arbitrage.
The HFRI Equity Hedge Index gained +4% in 3Q13 and over +9% YTD through September, with leading contributions from Technology/Healthcare and Fundamental Value strategies, which have gained +17% and +12.9%, respectively, YTD.
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By GlobalDataInvestors allocated over US$6.4 billion to Event Driven (ED) strategies, continuing the powerful growth of and interest in Shareholder Activist and Distressed hedge funds. ED has received over US$16.4 billion of inflows YTD 2013, a stark contrast to the outflow of US$6.6 billion from 2012.
Activist strategies led ED inflows in 3Q, with these receiving US$2.6 billion of new investor capital in the quarter and US$7.2 billion YTD; Distressed strategies received US$1.9 billion in 3Q. The HFRI Event Driven Index gained +2.8% in 3Q13 and +8.6% YTD, though Activist strategies have gained +11.9% YTD and Special Situations have gained +11.2%.
Fixed income-based Relative Value Arbitrage (RVA) continues to lead inflows across the main strategy areas for 2013, with RVA funds receiving over US$20.5 billion YTD, of which US$6.1 billion occurred in 3Q13. Total RVA AUM increased to over US$666 billion, narrowly trailing EH for the largest concentration of hedge fund strategy assets. The HFRI Relative Value Index has gained +4.7% YTD, but has posted annualized gains of +10.7% since December 2008, with only eight monthly declines in these trailing 57 months.
Macro strategies experienced relatively modest net inflows of just over US$300 million for 3Q13, with outflows in Systematic/CTA and Commodity focused strategies offsetting inflows across Discretionary and Multi-strategy areas. As a result of Commodity focused and CTA losses, Macro strategies have posted declines in 2013 with the HFRI Macro Index down -2% through 3Q.
Mirroring the trend from the prior quarter, flows were positive across the entire spectrum of fund sizes, though they were concentrated in the industry’s most established firms. Investors allocated $18.7 billion of new capital inflows to firms with greater than $5 billion AUM, while $3.6 billion of capital was allocated to firms with less than $1 billion AUM; firms between $1 and $5 billion AUM received inflows of $1.1 billion.
Kenneth J. Heinz, president of HFR, said: "Hedge fund capital flows in 3Q13 were consistent with trends and themes observed throughout the broader asset management industry, as investors increased allocations to innovative and sophisticated strategies that offer dynamic exposure to an increasingly complex financial market environment. From the U.S. government shutdown and the tapering of quantitative easing, to Abenomics in Japan, unrest in Syria and the impact of recent European elections, the requirement for investors and fund managers to understand geopolitical and macroeconomic influences has never been higher or more relevant. With all of these political undertones remaining fluid and ongoing concerns, and no sign of this changing in the near term, these trends are likely to drive record hedge fund industry capital flows into 2014."
