Hedge Funds Surpass $4 Trillion in Assets

The industry hit a record high of over $4.1 trillion in assets after three consecutive quarters of inflows and the best first-quarter performance since 2006, according to Preqin.

Illustration by II

Illustration by II

Hedge fund assets under management reached an all-time high of $4.146 trillion at the end of the first quarter of 2021, according to a Preqin report expected to be published Wednesday.

Commodity trading advisors, which saw the biggest net redemptions to in the first half of 2020, saw significant improvement in the first quarter of 2021. In fact, CTAs experienced the highest quarterly net inflows of $5.8 billion at the start of 2021. So-called niche strategies followed closely behind, ending the quarter with $5.75 billion of inflows.

“We see a bit of a shift towards the top level strategies that didn’t receive the attention in the pre-Covid-19 environment, because risk wasn’t a major factor,” said Sam Monfared, Preqin’s hedge fund expert and author of the report. “It seems like allocators are paying more attention to risk management and putting money into buckets that are there to protect capital.”

Event-driven strategies — which experienced the second-most redemptions in the first half of 2020 — also saw improvements in flows in the first quarter. However, the category still ended the three-month period with outflows of $3.9 billion. Macro-strategies experienced a similar trajectory, ending the quarter with outflows of $2.3 billion. Fifty-six percent of marco-strategy funds experienced outflows, the worst performance among all hedge fund strategy categories.

Overall, however, the first quarter’s “strong performance marked the best first-quarter performance since 2006, the sixth-best first-quarter return ever recorded by Preqin, and the third consecutive quarter of inflows,” according to the report.


“Much-Needed Optimism”

Hedge fund managers headquartered in North America had the best quarter for flows, according to Preqin. North American fund managers accumulated $19.8 billion from investors this quarter, a massive improvement from the net outflows of $54.7 billion in the second half of 2020. Managers in the Asia-Pacific region also had a strong quarter, recording net inflows of $7.3 billion. European hedge fund managers had $5.1 billion in net redemption, while managers based inn other parts of the world saw outflows of $11.1 billion.

“In the second half of 2020, we saw money outflows from North America and inflows in Europe; that trend reversed in Q1,” said Monfared. “A little bit of that is because Europe, in terms of performance, has been a little bit behind, and North America has outperformed other regions. So people are putting more capital into North America. People are also shifting their capital into the Asia-Pacific region, and that trend continued into 2021.”

The record high in assets comes during a period of “much-need optimism” in the hedge fund industry, Monfared said. From the first quarter of 2018 through the second quarter of 2020, the industry experienced nine consecutive quarters of net outflows. In the third quarter of 2020, the industry experienced a reversal of fate and raked in around $17 billion in net inflows.

“This is obviously a good mark to hit for the hedge fund industry, especially because, over the past few years, the industry has struggled a bit,” said Monfared.