Hedge Fund Assets Continue to Climb

Good performance and investor inflows pushed hedge fund capital higher for the fourth consecutive quarter in Q3, according to data published by indexation and research firm HFR.

Total global hedge fund capital increased to an estimated $4.46 trillion, HFR says, an increase of $148 billion over the prior quarter on new investor inflows of $15.86 billion. Performance-based gains were led by strategy asset inflows into Relative Value Arbitrage, Equity Hedge and Event-Driven strategies.

In spite of decent performance, Macro capital declined, the strategy experiencing an asset decline as inflation and interest rates declined, pushing assets down by $12.7 billion. This brings total Macro capital to an estimated $702.7 billion. Systematic Diversified funds led Macro sub-strategy asset declines, falling an estimated $16.8 billion bringing total sub-strategy capital to $322.8 billion.

As investors continued to position for both interest rates reductions and increased geopolitical uncertainty, credit- and interest rate-sensitive fixed income-based Relative Value Arbitrage (RVA) strategies saw assets increase by $37 billion in Q3, led by net asset inflows of $6.7 billion, to increase total RV capital to an estimated $1.196 trillion. Multi-Strategy funds again led RVA asset increases in 3Q24, adding an estimated $23.9 billion of capital to end the quarter at $736 billion.

HFR says investors allocated new capital across funds of all sizes, led by inflows to the industry’s largest firms. Firms managing greater than $5 billion received inflows of $10.4 billion while mid-sized firms managing between $1 and $5 billion experienced estimated small net inflows of $7.5 million for the quarter. Firms managing less than $1 billion to start the quarter received strong inflows of $5.3 billion. Combining these with H1 flows, HFR says the largest firms experienced inflows of $19.1 billion, while mid-sized firms experienced an outflow of $4.9 billion, and firms managing less than $1 billion experienced an estimated inflow of $8.8 billion.

“Hedge fund capital rose to a new record for the fourth consecutive quarter in the volatile third quarter, with managers navigating the largest dislocation and volatility spike in several years in early August, while the combination of election and geopolitical risks elevated to historic levels,” says Kenneth Heinz, president of HFR. “At the same time, interest rate and inflation risks shifted from the generational peak levels to align with expectations for slowing global growth and moderating inflation, with managers and investors positioning for lower interest rates to drive M&A activity in 2025.

“With less than two weeks until the US presidential election, successful managers remain tactically positioned for a wide range of market reactions, scenarios and cycles, which can range from increased volatility, dislocation and disruption, increase or partial resolution of global military conflicts and new policies relating to trade, immigration, taxation and general business outlook,” he continues. “Investors are likely to continue positioning for this uncertainty by allocating to funds which have demonstrated their strategies’ versatility and robustness through recent volatility spikes and dynamic financial market cycles.”