Money Chasing Performance in Hedge Funds

The latest report from HFR on hedge fund assets under management (AUM), highlights how investor money is chasing performance, with uncorrelated macro strategies, which have outperformed other strategies over the first half of the year, attracting capital amidst a general outflow.

The latest Global Hedge Fund Report from HFR says that as a result of the volatility and positioning for generational inflation, as well as the increased likelihood of an economic recession, institutional investors withdrew an estimated $27.5 billion from hedge funds in the second quarter of 2022, the highest quarterly outflow since Q1 2020.

Total global hedge fund industry capital fell to $3.82 trillion, as managers navigated extreme volatility with leadership from uncorrelated macro strategies, including fundamental commodity and discretionary funds, as well as quantitative, trend-following CTA strategies which posted record gains.

Macro AUM grew by $25.9 billion in the second quarter on strong performance-based gains to surpass the $700 billion milestone, ending the quarter at an estimated $704 billion. Macro sub-strategy inflows and asset increases were led by quantitative, trend-following CTA strategies, as investors allocated $266 million of net new capital to CTA’s, which produced performance-based gains of $21.7 billion to end Q2 with an estimated $359 billion AUM.

With interest rates rising in and expectations for continued increases, capital managed by credit- and interest rate-sensitive fixed income-based Relative Value Arbitrage (RVA) strategies experienced an estimated net outflow of $3.5 billion in Q2, to $1.024 trillion AUM. Despite outflows in other RVA sub-strategies, multi-strategy funds led RVA sub-strategies with estimated net asset inflows of $2.7 billion, keeping RV: MS capital steady at $616.8 billion.

The industry’s largest firms, those managing greater than $5 billion, led investor outflows in Q2, with an estimated net asset outflow of $19.6 billion for the quarter. Firms managing between $1 billion and $5 billion saw an estimated net outflow of $7.2 billion, while investors redeemed approximately $800 million from firms managing less than $1 billion over the quarter.