Hedge Funds AUM Surpasses $4 Trillion Following October Rise: HFR

The latest monthly report from HFR reports that the total capital invested in the hedge fund industry rose above $4 trillion in October, following further gains for managers during the month.

The investable HFRI 500 Fund Weighted Composite Index advanced 1.7% in October, while the HFRI Fund Weighted Composite Index (FWC) was up 1.6%. The performance dispersion of the underlying index constituents narrowed slightly, as the top decile of the HFRI gained an average of 8.0%, while the bottom decile declined by an average of 4.8%, representing a top-bottom dispersion of 12.8 percent, compared with 13.3% in September. In the trailing 12 months ending October 2021, the top decile of the HFRI soared by an average of 85.1%, while the bottom decile declined by an average of 7.0%.

Equity hedge funds led the way in terms of performance, while uncorrelated Macro strategies also advanced as short term rates increased while longer term rates fell, and energy prices extended recent gains. The investable HFRI 500 Macro Index returned +1.4%, while the HFRI Macro (Total) Index added 1.3%. Macro sub-strategy performance was led by quantitative, trend-following CTA strategies with the HFRI Macro: Systematic Diversified Index gaining 2.5%, while the HFRI Macro: Active Trading Index added 1.6%.

Fixed income-based, interest rate-sensitive strategies also gained for the month, as the yield curve flattened and as investors positioned for the near-term tapering on bond purchases by US Federal Reserve. The investable HFRI 500 Relative Value Index also advanced 0.8 % for the month, while the HFRI Relative Value (Total) Index gained 0.7%. Sub-strategy performance was led by the HFRI RV: Yield Alternative Index, which jumped 4.05%, while the HFRI 500 RV: Convertible Arbitrage Index gained 2.5%.

“The hedge fund industry surpassed a historic milestone in October, as performance-based gains across all strategies drove total industry capital to exceed $4 trillion for the first time in history,” says Kenneth Heinz, president of HFR. “The milestone also marks a sharp reversal from April 2020, when industry capital fell below $3 trillion at the beginning of the global pandemic. Industry growth has been driven by strong performance which extends widely across strategies – including high and low beta, equity, fixed income, commodity and currency strategies, and emerging and established managers.

“Hedge funds have successfully navigated multiple market cycles over the past 18 months, beginning with equity market capitulation in March 2020, navigating intense equity and commodity volatility, and most recently, rising interest rates and inflationary pressures,” he adds. “Global financial institutions are likely to increase allocations to funds which have demonstrated their strategy’s robustness through recent market cycles, with these set to lead industry growth into 2022.”