Hedge Fund AUM Back to $4 Trillion: HFR

Hedge fund capital has returned to the $4 trillion level for the first time since 2021 in Q3 2023, the fourth consecutive quarter assets allocated to the industry have risen according to indexation and analysis firm HFR.

This represents a $3 billion quarterly inflow, HFR reports, including investors allocated a net $2.3 billion in new capital. Event Driven and Relative Value strategies led the way, with investors retreating from Equity Hedge strategies. Event Driven strategies attracted $25 billion in new money, with the fixed-income sensitive Relative Value funds attracted $17.5 billion.

The solid performance of Macro strategies saw that sector’s capital increase by an estimated $15.5 billion, reversing a decline in the first two quarters of the year. Systematic Diversified strategies led the way in macro, increasing an estimated $8.2 billion in the quarter.

Inflows for Q3 were concentrated in both mid-sized and the industry’s largest firms, with firms managing between $1 and $5 billion in capital receiving an estimated $2.9 billion in net investor inflows while those managing greater than $5 billion experienced an estimated net asset inflow of $2.2 billion, HFR reports. Year-to-date these firm AUM tiers have received an estimated net $3.8 billion and $16.1 billion, respectively, while firms managing less than $1 billion experienced estimated outflows of $2.8 billion for Q3 and $5.0 billion for the year.

“Total hedge fund capital surpassed the $4 trillion milestone again to conclude Q3, a milestone initially surpassed in Q4 2021 before capital declined in 2022, as a volatile combination of macroeconomic and geopolitical risks drove industry performance and investor allocations through a risk off market cycle,” says Kenneth Heinz, president of HFR. “Hedge funds have again navigated a powerful shift and negative reversal in risk tolerance and sentiment, as positive correlation between equities and bonds rose sharply throughout Q3, presenting risks to classic, traditional long-biased strategies, as well as opportunities for funds tactically positioned for these trends.

“Investor sentiment recently has been driven by macroeconomic and geopolitical risks, with focus not only on inflation and interest rates, but military conflict, including both supply chain and political impacts of these volatile, fluid situations,” he continues. “Once again, strategies which have demonstrated their ability to navigate this latest shift in risk sentiment and evolving, forward-looking risks are likely to attract capital from leading global financial institutions seeking to opportunistically position their portfolios while also preserving capital, with these driving industry growth into 2024.”