If it seemed as though a new hedge fund was popping up every day last year, you weren’t imagining things. According to a Hedge Fund Research report released last week, 614 new funds hit the market in 2021, the highest number of launches since 2017, when a record 735 new hedge funds were rolled out.
“Strong growth trends continue to be driven by rising geopolitical and macroeconomic uncertainty, with institutional investors positioning for this uncertainty and looking for portfolio capital protections,” Kenneth Heinz, president of HFR, said in a statement. “These concerns from the prior year have only been increased by the early 2022 volatility and expectations for significant interest rate increases.”
Meanwhile, only 527 hedge funds were liquidated in 2021 — the lowest number of liquidations since 2004, when total industry capital was just $973 billion, less than a quarter of today’s total industry capital of $4 trillion. HFR attributes the decline in liquidations to the current uncertainty in the macroeconomic environment, including worries about inflation, increased government spending, rising interest rates, and geopolitical tensions.
HFR’s HFRI 500 Index saw a 9.9 percent gain in 2021. In the first two months of 2022, that growth has slowed a bit, and the index has “exhibited strong defensive capital preservation” amid the volatility at the start of the year, HFR said in a statement. Specifically, HFR’s HFRI Fund Weighted Composite Index had a year-to-date loss (which includes January and February 2022 results) of 1.92 percent.
HFR breaks down its indices into single-manager strategies, including equity hedge, event-driven, macro, and relative value. The HFRI Macro index saw the greatest return of any strategy-specific index, with a YTD gain of 2.17 percent. “Powerful risk-off trends and gains across uncorrelated macro strategies have excelled through the early 2022 volatility,” Heinz said. “These strategies have not only navigated the inflation/interest rate-sensitive trends, but also the surging energy prices and military escalation [in] Ukraine.” As a result, Heinz said that he expects macro funds and the entire hedge fund industry to continue to perform well throughout 2022.
PivotalPath, another hedge fund research organization, revealed similar findings in its March 2022 report. PivotalPath’s composite index, which measures overall hedge fund industry performance, gained 0.3 percent in February 2022, after a steeper decline in January. Managed futures and global macro strategies, meanwhile, saw the strongest performance out of all PivotalPath’s observed strategies in February, generating returns of 2.2 percent and 1.3 percent respectively.
PivotalPath attributed the gains to the fact that strategies such as global macro, managed futures, and equity quant have capitalized on the “flattening yield curve, rally in the energy complex, and other factor trends, all of which [have been] at least a year in the making.”