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Hedge Fund Assets Hit Record $3.8 Trillion After Strongest Start to the Year Since 2000

Cryptocurrency hedge funds led performance in the first quarter, posting 120 percent growth, according to HFR data.

The good times have kept rolling into 2021 for hedge funds. 

Hedge fund assets reached a record-high $3.8 trillion in the first quarter of the year, boosted by the industry’s strongest first-quarter performance since 2000, according to new data published Wednesday by Hedge Fund Research.

By the end of the first quarter, hedge funds around the world had added $201 billion in capital since the start of the year, HFR said. The research firm added that hedge funds, on average, gained about 6 percent during the quarter. By comparison, an index tracking the S&P 500 gained nearly 5.8 percent in the first quarter, HFR said.

According to HFR, the industry gains were helped by more investors choosing to place their money with hedge funds, as well as market volatility.

The new U.S. presidency, economic stimulus measures, COVID-19 vaccine administration, and new virus variants all created opportunities for hedge funds in the first quarter, HFR president Kenneth Heinz said in a statement. He added that cryptocurrency volatility and the spike in interest in “heavily shorted, deep value equities” like GameStop also dominated the market. 

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"Each of these, as well as evolving macroeconomic and geopolitical dynamics, represent both a risk and an opportunity for specialized hedge funds actively positioning in these areas,” Heinz said. “Leading institutional investors interested in defensive, opportunistic exposures to each of these are actively working to increase portfolio exposures to leading and innovative hedge funds which have and continue to navigate these rapidly shifting market dynamics.”

HFR noted that cryptocurrency hedge funds outperformed all other hedge funds in the first quarter, posting 120 percent growth. This follows a rise of 193 percent in 2020, according to HFR.

Meanwhile event-driven funds, which focus on upcoming mergers and acquisitions and other corporate events, posted 8.2 percent growth in the first quarter and topped $1 trillion in assets for the first time, HFR’s data showed. Equity-focused funds posted 7.1 percent gains.

The overall industry saw net capital inflows of $6.1 billion in the quarter, with $5.3 billion in new capital going toward firms managing more than $5 billion, according to HFR’s data. Mid-sized firms, which manage between $1 billion and $5 billion. posted a net outflow of $1.4 billion, while firms managing less than $1 billion saw inflows of $1.1 billion, HFR said. 

By strategy, interest-rate sensitive, fixed-income-based relative value arbitrage strategies saw the largest inflow of new capital in the first quarter, HFR said. These funds added $39 billion in capital during the quarter.

Total hedge fund assets have risen $844 billion over the past 12 months, since falling below $3 trillion in the first quarter of 2020 at the outset of the Covid-19 pandemic, according to HFR.

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