Hedge Funds Continue to Build Capital
Posted by Colin Lambert. Last updated: January 27, 2025
Total global hedge fund capital surged to a record level in 2024, reflecting a strong performance year for the sector, culminating in Q4 marking the fifth consecutive quarter it has risen.
According to indexation and analytical firm HFR, the sector ended the year with an estimated $4.51 trillion in capital, an increase of $53.5 billion over the prior quarter and $401.4 billion for the full year. The increase was largely driven by performance, in Q4 HFR says capital flows showed a small net outflow of an estimated $12.57 billion, paring the full year 2024 net inflows to $10.47 billion.
HFR adds 2024 is the first calendar year of net asset inflows since 2021 ($15.12 billion, and that the full year 2024 total AUM increase of $401.37 billion is highest that year, when it rose by$407.962 billion.
Investor outflows in Q4 were spread across funds of all sizes, as firms managing greater than $5 billion experienced estimated outflows of $9.6 billion, while mid-sized firms managing between $1 and $5 billion saw estimated outflows of $1.2 billion for the quarter, and firms managing less than $1 billion experienced outflows of $1.7 billion.
For the full year 2024, the largest firms saw inflows of $9.4 billion, while mid-sized firms managing between $1 and $5 billion experienced an outflow of $6.1 billion, and firms managing less than $1 billion received an estimated inflow of $7.2 billion.
“Total global hedge fund industry capital rose to a fifth consecutive quarterly record as managers, institutions and investors positioned for sweeping policy changes which are likely to have significant and far-reaching implications for US and global financial market structure, regulation and capital,” says Kenneth Heinz, president of HFR. “In addition to these, managers are positioning aggressively and opportunistically for a powerful and broad expansion of cryptocurrency acceptance, a robust strategic M&A cycle, falling (albeit shifting) geopolitical uncertainty, and an evolution in oversight and regulation of financial institutions.
“As these powerful trends evolve through early 2025, managers are preparing for a wide range of market cycles, with the possibility for volatility and dislocations as investors adapt to new policies regarding interest rates/inflation, legislation and tariffs,” he continues. “Expecting these broad changes to be also accompanied by rapidly shifting market cycles and risk sentiment throughout H1 2025, investors are likely to continue positioning for these powerful and unpredictable trends by allocating to funds specifically and tactically positioned to deliver strong, opportunistic performance while also providing defensive portfolio protection through the uncertainty of these sweeping political and economic changes.”