Hedge Fund Assets Hit Record High

As stock markets wobbled in the first quarter, investors poured more than a billion into hedge funds, sending their total assets higher than they’ve ever been.

Illustration by Institutional Investor.

Illustration by Institutional Investor.

Hedge funds have been touting themselves as a potential safe haven when volatility returns to the markets - and investors have been listening, according to capital flow data released Thursday.

Total hedge fund industry assets rose to a record $3.22 trillion as of March 31, figures from data tracker Hedge Fund Research show. The sector took in$1.1 billion of net new money in the first quarter of 2018, marking the fourthstraight quarter of inflows. Hedge funds took in nearly $10 billion of net new money last year,according to HFR.

The new high comes as the hedge fund industry continues toface criticism over high fees and several years of lackluster performance. Investors had pulled marginally more capital than they allocated over a five-quarter period, from late 2015 through early 2017.

All the cries that it’s the end of the line for the hedge fund industry - we’re certainly not seeing that,” said Tom Hill, chairman of Blackstone Alternative Asset Management, in a new paper released earlier this week by the Alternative Investment Management Association. “The industry may not grow at the rate it witnessed between 2000 and 2017, but we are going to see net gains.”

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Some hedge fund marketers have said their funds’ strategies are tough sells these days, as investors have soured not just on hedge funds but actively managed strategies in general. But as volatility returns to the markets, managers argue that now is the time to invest in their products.


“I think it is absolutely the wrong time to get out of hedge funds,” said Kyle Bass, founder and chief investment officer of Hayman Capital Management, in the AIMA paper. “I think we have had eight years of an unprecedented bull market, and we’ve had very little to no volatility in long-only strategies.”

Equity hedge strategies lost $6.57 billion from net flows in the first quarter,with investors favoring instead M&A and credit-driven strategies.

The Standard & Poor’s 500 stock index fell 1.2 percent over the same period. Markets gyrated amid coverage of President Donald Trump’s orders to levy tariffs on Chinese imports and Facebook’s data privacy scandal. The index is now up 1.3 percent for the year

HFR’s equity hedge index gained 0.59 for the first quarter of 2018. Equity hedge strategies still account for the largest proportion of industry assets, at $937 billion, by HFR’s count.

Event driven was the most popular strategy during January, February, and March, adding $4.4 billion to finish the quarter with $835 billion in total, according to HFR. The data tracker’s event-driven index returned 0.15 percent during that period.

Macro funds took in $909 million as HFR’s macro index lost 1.25 percent over the period, as investors pulled money from discretionary commodity, fundamental, and multistrategy funds in favor of quantitative, trend-following CTA strategies, according to HFR.