Money Chases Performance as Investors Head to Macro Funds

While investors more generally withdrew an estimated $26 billion from hedge funds in Q2 2022, the latest report from analytics and indexing firm HFR finds that the current hot strategy – macro – attracted increased investment.

HFR says total global hedge fund industry capital fell to $3.78 trillion, but macro strategies grew by $8 billion, largely thanks to strong performance-based gains, ending the quarter at an estimated $711 billion. Macro sub-strategy asset growth was led by fundamental, discretionary strategies, which increased by $2.7 billion, while quantitative, trend-following CTA strategies increased by $2.2 billion.

The investable HFRI 500 Macro Index has risen 17.2% year-to-date, leading all strategies, while the wider index is down 4.5%.

The industry’s largest firms, those managing greater than $5 billion, led investor outflows in Q3, with these experiencing an estimated net asset outflow of $18.9 billion for the quarter, HFR says. Firms managing between $1 billion and $5 billion saw an estimated net outflow of $5.3 billion, while investors redeemed nearly $1.8 billion from firms managing less than $1 billion over the quarter.

“Diversifying strategies such as macro, CTA and relative value arbitrage have demonstrated the robustness and effectiveness of their strategies to institutional investors throughout 2022,” says Kenneth Heinz, president of HFR. “Effectively navigating extreme volatility, generational inflation, sharp interest rate increases, a historic breakdown in correlations, an increased likelihood of a recession, and a sharp increase in geopolitical risk.

“Once again, macro and relative value arbitrage hedge funds drove historic defensive capital preservation and the largest opportunistic equity and fixed income outperformance since inception of the HFR Indices,” he adds. “Uncertainty regarding all of these macroeconomic and geopolitical drivers has continued to accelerate into Q4 with expectations for extreme volatility and the potential for dislocations extending through year end.

“Managers remain positioned for the fluid and dynamic market cycles, continuing to execute on their strategies, operate as liquidity providers, preserve capital, and identify and monetize opportunities created by the volatility,” he continues. “Strategies which have demonstrated their ability to navigate the current extreme market volatility are likely to attract capital from leading global financial institutions looking to stabilise their portfolios from losses in long equity and fixed income exposures, and to drive industry capital growth into 2023.”