Hedge Fund AUM Still on the Rise

Total hedge fund assets under management (AUM) rise for the third quarter in succession according to the latest report from indexation and analytical firm HFR.

Total hedge fund capital is estimated by HFR to have risen to $3.95 trillion, a quarterly increase of over $60 billion. Although performance contributed heavily to the increase, HFR also says investors allocated an estimated $3.6 billion in new capital to the industry in Q2 2023, the second consecutive quarter of net asset inflows.

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, while capital managed by credit- and interest rate-sensitive fixed income-based Relative Value Arbitrage (RVA) strategies increased by an estimated $8.7 billion, raising total RV capital to $1.06 trillion. Multi-Strategy funds led RVA asset increases, adding an estimated $6.5 billion of capital to end the quarter at $649 billion.

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

Inflows for the quarter 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,” says Kenneth 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.

“While investor risk tolerance has increased through mid-year, these shifting and evolving macroeconomic and geopolitical trends present new opportunities for performance generation but also potential for dislocations; in particular, expected new banking regulations and capital requirements present a compelling opportunity for hedge funds to expand into areas where increased requirements force regulated banks to pull back from certain specialised lending and trading areas,” he adds. “Once again, strategies which have demonstrated their ability to navigate this 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 the second half of 2023.”